Bolt Beranek & Newman Inc’s plans to get out of its current financial hole have left Standard & Poor’s Corp unmoved and seen the company’s subordinated debt downgraded to a dire CCC+ with the outlook negative (CI No 2,111). At the beginning of last month, the Cambridge, Massachusetts company reported second quarter net losses of $25.1m, after $20.5m restructuring charges, against profits of $1m last time. Turnover was down 8% at $59.8m. The problems reflect a painful transition period for Bolt Beranek as its major market – the military military, on which it depended for almost half its revenue – is slipping away while it has yet to see much return from its substantial investment in Asynchronous Transfer Mode switching or its T/10 Integrated Access Device. In a letter to shareholders, chairman and chief executive Stephen Levy outlined how the company had responded – senior management positions have been consolidated, staff had been reduced by around 300 and the company is pinning its hopes on, among other things, its Emerald Asynchronous Transfer Mode switch. Standard & Poor’s has misgivings about this particular plank of the strategy: the company is moving into markets with entrenched competition and agressive pricing, it says – perhaps a salutary warning all of those companies attracted by the bright light of Asynchronous Transfer Mode switching. Moreover, Emerald is late – originally the company said that it would be launched in the first quarter, but it is now expected sometime this summer. And nobody really knows yet just how big the Asynchronous Transfer Mode market will prove. Analysts say that as a result, the company’s financial room for manoeuvre is becoming limited. They stress that there is no question of an immediate cash crisis: BBN is sitting on cash reserves of around $48m which should see it through comfortably for around 18 months. However if the company has not managed to turn the corner by then, it will be forced to tighten its belt further as money shortages begin to affect day-to-day business. The company says that its cutbacks should save around $20m a year, however Levy adds in his letter that even after the restructuring BBN’s network products activity will continue to cause operating losses for the company. It has teamed up with Ungermann-Bass Inc to develop some of the interfaces to Emerald and says it is currently on the look-out for similar collaborations, which may take some of the financial strain from its development programmes. It insists however that the Emerald research and development effort has been left unscathed by the cutbacks.
