Software vendor MicroStrategy will off workers for the first time since its creation in 1989 as part of a restructuring plan that aims to turn around the company's financial future.
The Virginia-based company, which has watched its stock price drop from $US333 per share on March 10 to $US27.50 per share, announced the restructuring plans Monday.
"Our year to date financial performance has been unacceptable and we are firmly committed to strengthening our business," said CEO and president Michael J. Saylor, in a statement. "Reducing head count was a very difficult decision for us to make. However, this reduction was a necessary step in our plan to improve operating results."
The layoffs of 234 people, which will be completed by late September, are expected to save the company about $US25 million annually, while the restructuring will incur charges of $US4 million to $US8 million this quarter.
The 234 laid-off workers represent about 10% of MicroStrategy's work force in North America. The majority of the staff cuts are reported to be in general and administrative staff positions, with only minor cuts in research and development positions. No sales positions are expected to be affected.
Also planned are cost-cutting moves, including the elimination of quarterly corporate events such as an annual cruise for employees and a weekend of events for employees and their friends and families. More cost savings will come from facility consolidations around the firm's Virginia headquarters and through a new, more efficient multichannel product distribution strategy.
Spokeswoman Ivy Eckerman said that while the markets for the company's data-mining and customer-relationship management software remain healthy, the firm was hard-hit economically earlier this year when it had to restate its earnings from 1997 to 1999 to accommodate new federal revenue-reporting guidelines. The restatements lowered the company's revenue figures for the past three years, sending it into a tailspin on Wall Street.
"With the restatement, there was some hesitancy to close deals" among some customers, said Eckerman. "MicroStrategy is trying to aggressively get back on track. We have tremendous technologies and we're trying to address any concerns people have with our business."
In June, however, the company did get some good news when it received $US125 million in new financing from an investors' group. Since then it has also signed up new partners and launched an online store where customers can evaluate and purchase the company's electronic-business software applications. The company is also expanding its target audience for its products to woo small and midsize businesses, which the company has not tapped in the past.
At the beginning of the month, MicroStrategy juggled several members of its management team, bringing in Eric Brown from Strategy.com as the new chief financial officer.
And on Wednesday, the company is launching its newest software update, MicroStrategy Electronic Customer Relationship Management 7.
Analysts say the restructuring is good for the company.
"Wall Street will respond favorably to the move, to see that executives know where to go to trim the fat," said Bob Moran, an analyst at Aberdeen Group Inc. in Boston. "I have not heard one rumbling from [MicroStrategy] clients -- those who have bought their systems -- losing confidence in the company."
"Make no mistake, they have a fight in front of them" to return to a healthy financial state and to continue as one of the market leaders, Moran said. "But they didn't get to where they were without stellar technology and marketing."
Dan Vesset, an analyst at International Data Corp. in Framingham, Mass., said if MicroStrategy follows through with the staff reductions in administration and keeps its hands off the research and development staff, then the restructuring won't hurt the continued development of its products.
"They are strong enough to get through" the tough financial times, he said, "as long as they keep their technology strong."
Peter Urban, an analyst at AMR Research Inc. in Boston, said the MicroStrategy is heading in the right direction by finally getting its expenses under control.
"I think they have to do it," Urban said. "You have to turn a profit or you're just going to burn through your cash."