Updated from 1:48 p.m. ET
After braving months of pressure to separate its high-growth semiconductor unit from its stagnant communications equipment business,
finally announced a breakup plan Friday, but the company's shares plunged as it simultaneously slashed profit predictions.
Mitel finished Friday trading down $5.81, or 35%, at $11..
Mitel said it now expects a 20% decline in its communications equipment sales to about C$416 million in its fiscal year, which ends March 31. It expects semiconductor sales to grow 30% in 2001. It now expects earnings of 15 Canadian cents a share for the third quarter, and 80 Canadian cents a share for the year, down from C$1.
In a conference call with analysts, company officials said they plan to separate the two units by March 2001, possibly selling the communications system unit. The unit's stiff competition is evident from a look out the window in its hometown of Ottawa, where
are either headquartered or maintain substantial operations. More pointedly, as a spinoff, the unit would resemble and directly compete with
, a recent
spinoff. Avaya stock was down about 50% on Friday from its peak of $26. It began trading Oct. 2 and recently posted fourth-quarter earnings that fell 56% from a year ago.
"As a pure play, obviously the chip business could garner more aggressive multiples," said David Hodgson, analyst for
, which has not done recent underwriting for Mitel. Hodgson was re-evaluating his rating Friday. "That being said, this move is coming six months too late."
For the semiconductor business, the company said its order backlog remains strong, though analysts noted it fell sequentially. This week, several semiconductor companies indicated that demand has slipped, and the
Semiconductor Industry Association
, a trade group, predicted that sales growth will fall off in the coming year.
Mitel reported adjusted net income of C$30.5 million, or 24 Canadian cents a share, compared to net income of C$27.7 million, or 23 Canadian cents a share, in the year-ago quarter. Three analysts polled by
First Call/Thomson Financial
expected on average a profit of 23 Canadian cents a share. Revenue of C$359.8 million was up 3% from C$348.8 million last year.
Including acquisition charges of C$23.9 million, Mitel reported a net income of C$6.6 million, or 5 Canadian cents a share, compared with C$12.5 million, or 10 Canadian cents a share, last year.
The split is not the first sharp turn for Mitel, one of Canada's oldest technology companies. Just a few years ago, it heralded a march into computer telephony integration products, which ultimately flopped, dragging down the core business as the company concentrated its resources on its latest fascination.
More recently, Mitel has given mixed signals about its focus. In September, the company said it would invest C$13.5 million to expand its headquarters and add 400 engineering jobs to the semiconductor business. As a reason for the investment, the company cited growing demand for communications equipment.