CNT Cuts Anticipated

Computer Network Technology Corp. (CNT) (Nasdaq: CMNT), which already admitted its revenue from last quarter fell more than $20 million below analyst expectations, appears set to announce a big layoff next week. Sources familiar with the company say it could lay off up to 25 percent of its staff Tuesday when it reports earnings (see CNT Warns of Deeper Losses).

Sources say CNT has already told staff it would lay off around 300 employees, with the cuts coming across the board. CNT had 1,210 employees in May. One source familiar with CNTs business plan says the headcount will drop even further. “There are more to come,” the source says. “This is just the first round.”

CNT spokeswoman Jennifer Weidauer refused to comment on layoffs today, but says executives Tuesday will provide details “in line with what we said in our guidance announcement.”

Last week, CNT CEO Tom Hudson warned last quarter’s earnings would disappoint and said there would be reductions, but he did not say how deep the cuts would go. Hudson said revenues for last quarter would be in the $75 million to $80 million range with a loss from $0.19 to $0.23 per share. According to First Call, the Minneapolis-based company was expected to report $103 million in revenue and $0.02 EPS.

On last week's conference call with analysts, Hudson said that CNT could return to profitability in the final quarter of the year if its income remains in the $75 million to $80 million range. One analyst asked, “Can you fire that many people to be breakeven?” Hudson replied, “We think we are in position to do what we need to do to be breakeven.”In its previous quarter, CNT lost $1.5 million on revenue of $96.2 million (see CNT Smacked for Its Tweak and CNT Drops $1.5M). Hudson blamed the disappointing quarter on the need to defer several large deals into future quarters, along with a slowdown in IT spending that hurt the company’s UltraNet SAN extension business. He said the company hopes to grow revenues from sales of its 256-port UltraNet Multi-service Director (UMD), which it acquired when it bought Inrange Technologies in April 2003.

The first of the UMD directors will be available next month (see CNT Stakes Claim on New Director, CNT Delivers New Director, CNT Walks Off With Inrange). To grow revenue from it, CNT will have to win market share from at least one of the big three switch vendors – Brocade Communications Systems Inc. (Nasdaq: BRCD), McData Corp. (Nasdaq: MCDTA), and Cisco Systems Inc. (Nasdaq: CSCO).

— Dave Raffo, Senior Editor, Byte and Switch