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Electronics Production | October 01, 2004

Agere to axe 500

Agere Systems announced plans to align its cost structure with current revenue expectations and improve profitability. As part of these actions, the company is reducing its workforce by 500 employees across the business, including administrative functions, sales, marketing and product development.
With these actions, the company will lower both its costs and operating expenses. The company expects to reduce its quarterly research and development (R&D) and selling, general and administrative expenses to approximately $170 million to $175 million by the third quarter of fiscal 2005, beginning in April. In the quarter ended June 30, the company had reported $195 million in these expenses.

In addition, Agere announced that it would cease operations in its wafer manufacturing facility in Orlando, Fla., by the end of December 2005, if a sale of the facility cannot be arranged by that time. In 2002, the company had announced plans to sell this facility as an ongoing operation, but has not yet found a suitable buyer. The facility currently employs approximately 600 people.

The company expects cost benefits from the facility closing to begin accruing in fiscal 2006.
The company expects to take total restructuring charges and expenses in the range of $340 million to $360 million associated with these actions, with approximately $130 million to $140 million to be recorded in the fourth quarter of fiscal 2004, ending September 30, and the remainder to be incurred in subsequent quarters.

Agere also reaffirmed that revenues in the September quarter are still expected to be in the range of $420 million to $445 million, which was the guidance provided in July.
The company expects revenues for the first quarter of fiscal 2005, ending December 31, 2004, to be sequentially lower by approximately 5 percent. This decline is due to inventory adjustments by customers of 2.5G/GPRS mobile phone and telecommunications products, as well as a seasonal decline in IP revenues and shipments of chips for satellite radio. Gross margin is expected to decrease sequentially due to lower utilization of capacity and lower revenue levels. The company will provide additional guidance for the December quarter during its quarterly earnings conference call on Tuesday, October 26.

"While our actions to reduce the workforce are clearly very difficult for employees, they were absolutely necessary to align our expenses with our revenues," said John Dickson, president and CEO, Agere Systems. "The issues we faced with three major customers now seem to have broadened into an industry-wide inventory correction, as reflected by a spate of earnings warnings from most companies in our industry. Agere Systems has a strong balance sheet, exceptional relationships with our customers, and we are confident that the improved cost structure, coupled with sharply focused R&D investments will drive profitable growth as we move through 2005."

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