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Powerwave Trims Jobs Amid Sales Crunch

Cash-strapped Powerwave Technologies Inc. plans to cut about 110 employees companywide and an unspecified number of contract manufacturers as part of a restructuring plan.

The cuts—targeting manufacturing, administrative, sales and marketing, and research and development personnel—will be carried out in the next two quarters, according to a filing earlier this month with the Securities and Exchange Commission.

The Santa Ana-based company, which makes cellular base station gear for wireless networks, is expected to incur charges between $2 million and $2.5 million in severance payments and other costs related to the move. The charges are expected to be paid out over the next 12 months, according to the filing.

The reductions amount to about 5% of its global work force.

Powerwave employed 2,140 full- and part-time employees companywide, according to its annual report filed in January. That included 921 in manufacturing, 245 in quality control, 200 in supply chain, 469 in research and development, 119 in sales and marketing, and 186 in general and administrative positions.

The company also employed about 1,275 people in contract manufacturing, according to its annual report.

It aims to trim operating expenses to about $28 million per quarter, excluding non-cash compensation costs. In the recently ended quarter, operational expenses topped $34.6 million.

Powerwave did not respond to requests for comment on this story.

The company has faced mounting problems in recent months amid slowing demand from its manufacturing customers, along with weakness in international markets.

Troubles

Its recent troubles were outlined in more detail earlier this month after the company reported disappointing third-quarter earnings.

Powerwave saw sales drop across its operations.

Revenue in the Americas was $32.5 million in the September quarter, down 54% from a year ago. Sales in the Asia Pacific region dropped nearly 57% to $14.6 million. Revenue fell in Europe, Africa and Middle East to $30 million, down 41.5% from a year ago.

Powerwave’s gross margin, a key measure for assessing technology companies, was 7.5% in the third quarter, down from 29.4% a year ago.

The company burned through $16 million in the first three quarters.

It had cash reserves of $46.6 million in the recently ended quarter.

Slowdown

Powerwave executives and analysts have cited a “significant” slowdown in spending by North American network operators and the stalled merger between AT&T Inc. in Dallas and Bellevue, Wash.-based T-Mobile USA Inc., the U.S. wireless operation of Deutsche Telekom AG, for the revenue drop.

“AT&T stopped spending in Q3 on their equipment,” said Peter Misek, managing director of investment bank Jeffries & Co. in New York. “If spending doesn’t come back in Q1, then we have some issues.”

The wireless carrier is re-evaluating capital spending plans, Powerwave Chief Executive Ronald Buschur said in a conference call last month with analysts and investors.

Average sale prices for Powerwave’s products have been declining for years amid ongoing consolidation in the industry and recent pressure from wireless carriers seeking to bring down their own costs.

Costs, Products

To offset the decline, the company “must reduce manufacturing costs and ultimately develop new products with lower costs or higher average sales prices,” it said in a recent SEC filing.

Manufacturing lines expected to be affected by the cuts involve the assembly of many individual components, with precise fine-tuning by technicians. Parts and materials include printed circuit boards, specialized subassemblies, fabricated housings, relays and small electric circuit components, such as integrated circuits, chips, resistors and capacitors.

The company has in-house manufacturing operations and leased locations in the U.S., China and Thailand, where it has avoided the negative effects of widespread flooding and related damage that has upended operations for some Orange County-based companies doing business in the country.

Powerwave relies on an extensive network of contract manufacturers to supply printed circuit boards, a key component in many of its products.

The company has initiated a series of moves the last few months to conserve cash or build up its capital.

Reverse Split

In late October its board and stockholders approved a 1-for-5 reverse split of its outstanding shares of common stock and a reduction of authorized shares of its common stock.

The move was initiated to prop up Powerwave’s share price and stave off a possible delisting by Nasdaq, which requires companies to maintain a share price above $1.

Powerwave’s newly issued shares debuted a few days later on the NASDAQ Global Select Market.

As part of the restructuring plan, Powerwave in late October sold its Santa Ana headquarters for $49.1 million in one of the larger office deals of the year.

The company is expected to lease back the property from the new owners under a 15-year lease with two, 10-year extension options.

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