Tustin-based Cherokee International Corp., a maker of power supplies for computers and other electronics, reported a loss and a sharp drop in second-quarter sales on Friday.
Cherokee saw its shares plummet on the news.
The company said its sales of $31 million were off 20% from a year earlier, due to soft sales to telecommunications gear makers in Europe and the negative impact of exchange rates.
Cherokee reported an operating loss of $1 million, versus a year-ago profit of $6 million. The company posted a net loss of $1.7 million with severance payments and “higher-than-expected materials logistics costs.”
Costs related to Sarbanes-Oxley compliance also were a factor, the company said.
Demand from makers of servers and data storage computers were bright sports, according to Jeffrey Frank, Cherokee’s chief executive.
“We also recorded 32 design wins across a number of customer applications, and we expect a number of new programs from prior design wins to begin ramping production later this year,” he said.
The company also touted its $14.5 million in cash on hand at the end of the quarter, though that’s down from $18.7 million as of Dec. 31.
Cherokee said it sees continued slow sales in Europe and to telecom gear makers. Revenue for the third quarter is likely to fall from the second quarter’s level, the company said.
The results could embolden a change-minded investor that’s been buying Cherokee shares.
New York-based investment fund Steel Partners last month said it owns about 11% of Cherokee and could seek to buy more.
Steel said it may seek changes to Cherokee’s board, capitalization, ownership or operations, and even short sell or hedge the company’s shares.
One analyst has called for a sale of Cherokee. Michael Walker of Credit Suisse First Boston in New York wrote recently that Cherokee has been losing sales from its top customer, Nortel Networks Corp. The company is losing market share elsewhere, he said.
“We believe (Cherokee’s) best strategic option at this point is to find a buyer,either a competitor or a larger supply chain company seeking to vertically integrate,” he wrote.
Shares were down 8% late Friday afternoon.
