Wall Street apparently bedazzled the ECI Board by forecasting that
the total value of the five new companies to be spunoff, would be a
multiple of ECI's market capitalization. However, market conditions
prevailed. As of the end of April, ECI's market capitalization was
under $590 million. Its single digit stock price reflects a near fall
of 85% from less than a year ago when it traded just under $40. For
investors, undoubtedly there was pain associated with the fall in
value of the ECI shares.
However, for the personnel among those receiving "pink slips" the
pain is likely to be of a different nature. They will look for
employment within this country. Their know-how and experience puts
them at the very top of international communications expertise. But
should they not find suitable jobs they may have to look overseas and
that would be
the beginning of yet another "pain".
"Pain" is the adjective widely used by investors in describing the
emotional experience caused by falling stock prices, the slimming
down of investor portfolio values and the disappointments caused by
the disappearance of many dot coms. But the real "pain" is the one
caused by receiving the "pink slip"---. In the Israeli universe of
high-tech, until a half a year ago, getting the "pink slip" was seen
as an opportunity for switching jobs, perhaps better wages and most
certainly a more favorable options arrangement. Today getting the
"pink slip" not only brings with it the inconvenience of looking for
a new job but also the uncertainty of finding work in one's chosen
field. We hear about the closure or downsizing of Israeli companies
with the accompanying dismissal of hordes of employees. However it
came as a real shocker when ECI Telecom, as already mentioned in this
Report, said it plans to reduce its work force by about 1,000
employees world-wide and cut the salaries of its top managers by 10%.
The company currently has over 6,000 employees. In a seemingly
perverse investor reaction in trading on the Nasdaq Stock Market, the
company's shares responded by rising 29 cents to $6.38. In the fourth
quarter 2000, ECI recorded a net loss of $113m. compared to net
income of $56m. the previous year. Revenues for the Petah
Tikvah-based digital communications solutions developer increased
6.5% to $306m. from $288m. in 1999. The maker of telecommunications
and transmission systems also said its first-quarter revenue would be
between $252 million and $260 million. Analysts were expecting
revenue of $286 million. The company declined to estimate the amount
of the operating loss for the quarter. ECI Telecom in the 1980s
began its rise and emerged as Israel's stellar high-tech
communications company. It showed an uncanny ability to develop and
commercialize a core technology of speech and fax multiplication over
existing old fashioned communications lines. The recent dismal
results, according to sources close to the company, were only
partially caused by the decline in the global telecom market which
saw companies like Cisco and Nortel, among others, misjudge the
growth of telecom sales. They build up inventories which remained on
shelves as demand dwindled. Decisions previously taken by ECI's board
of directors, have had an erosive effect on sales and losses. In a
turnaround strategy first announced in the summer of 2000, only less
than a year after introducing a 'bigger is better' restructuring
plan, ECI Telecom announced its new initiative to divide the
telecommunications giant into five smaller publicly traded companies.
The "demerger" was a bad idea, we were told. Publicly announcing it,
before execution, was bad strategy. ECI Telecom was a name known to
the market place. The five new companies are five unknown little guys
calling on clients," our source added. Another source, also very
close to the company, agreed that that the "demerger" was a bad idea.
ECI's marketing muscle was fragmented, he suggested. However, he
conceeded that in the environment of 2000, it was difficult to hold
on to key employees. Many were attracted by the prospect of joining
new companies, that would be brought to the stock market and the new
perk options, would make them millionaires.