Disaster for Entrada?

Facing a Nasdaq delisting, Entrada has split into three businesses and cut its headcount again

August 23, 2001

3 Min Read
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Shares of Entrada Networks (Nasdaq: ESAN) tumbled to an all-time low today, Wednesday, as CEO Dr. Kanwar Chadha issued a public statement to shareholders detailing the breakup of the company and the worst results since it went public in August, 2000 (see Things Getting Grim at Entrada).

At press time the companies shares were trading at $0.11 -- giving it a market cap of $1.21 million.

In a letter to shareholders, Chadha blamed his companys financial troubles on the ongoing downturn in IT spending.

Entrada’s business includes IP SAN routers and switches, frame relay equipment, and NIC cards (see Entrada Merges With Sync Research). In an effort to curb the decline in revenue, Entrada had already laid off 20 employees and put a freeze on hiring and salary increases in July. But this was not enough to turn the numbers around, according to company officials. The latest actions are a last ditch attempt to brighten Entrada’s gloomy prospects.

Here are the main points made in Chadha's public statement:

  • Company breakupEntrada plans to carve up its business into three wholly owned subsidiaries: Torrey Pines Networks (SAN transport development efforts), Rixon Networks (adapter card business), and Sync Research (frame relay products and services business, currently classified as discontinued operations). The company hopes that this new structure will be the most effective way for these businesses to minimize operating costs and attract investment.

    “For starters, we are already a public company, so investors are not going to get the returns they would if we were private; and secondly, they do not want to invest in legacy businesses, which the frame relay and NIC card operations are,” says Michael Harris, senior VP marketing and business development at Entrada.

    This is the primary reason for the restructuring, Harris says. “We need to get the SAN transport business to stand on its own feet -- then it should attract investment.”

    [Ed.note: It is perhaps unfortunate that Entrada has chosen to name this part of its business after the Torrey Pine -- an endangered species in California. Timberrrrrr?!]

  • 20 percent workforce reduction

    Entrada plans to move its Maryland adapter card business unit to Irvine, Calif., to bring down staffing costs. After the layoffs, the headcount will be 70 to 80 people, with just under 40 in the SAN transport business and the remaining half split between the frame relay and adapter card businesses.

  • Nasdaq delisting threatThe company’s stock has fallen below the Nasdaq’s criterion for listed companies (a minimum bid price of $1.00 over 30 consecutive trading days). Entrada has been granted until October 22, 2001, to reachieve compliance with the rule. The stock is currently trading at around 11 cents a share.

    “It’s hard to tell at this stage whether we will achieve this,” says Harris. A funding announcement, major customer win, or partner announcement could push the stock up. However, analysts are skeptical that the company can make the kind of leap required to meet this goal within the next month or so.

    “They’ll end up on the over-the-counter trading board, which isn’t as prestigious as the Nasdaq, and it’s very hard for them to make it back on to the Nasdaq after this kind of relegation,” says Simon Weedon, analyst with Goldman Sachs & Co.

    There have been product setbacks as well. Entrada is pinning its future on the Silverline 222 SAN-over-IP switch, which is supposed to be shipping now. However, problems with processing power mean it will not be generally available until December at the earliest, Harris says.

    For the second quarter of fiscal year 2002, ended July 31, Entrada reported a net loss of $2.8 million, or $0.26 a share, compared to a net loss of $0.7 million, or $0.18 a share, for the same period a year ago. These results include sales from continuing operations -- its adapter card business -- of $2.2 million for the quarter, compared with $6 million reported in the same period last year. The frame relay business had net sales of $1.9 million. Entrada’s SAN transport business, the part it hopes will turn around its fortunes, has yet to bring in any revenues.— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com

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