Polycom Inc. (PLCM) recently announced plans to cut its workforce by 3% in the third quarter. Consequently, the company will record a restructuring charge of $5 million – $6 million in the same quarter. Last January, management had declared plans of reducing total headcount by 150 during fiscal 2009. However, the company did not initiate any workforce-reduction program in the first half of the year.
At the end of fiscal 2008, Polycom had 2,648 employees. This implies that about 80 employees would lose their jobs in the third quarter. Management said headcount reduction was needed for the company to realign and reinvest resources in strategic growth areas. We believe this decision primarily reflects a highly competitive nature of the unified collaborative communications solutions market.
Polycom is in a solid position financially, with approximately $4.42 per share of cash and marketable securities and no outstanding debt at the end of the last quarter. The company also continues to generate free cash flow. During the second quarter, Polycom achieved its 46th quarter of sequential positive cash flow from operations. A strong net cash position coupled with continued free cash flow generation remains a possible investment catalyst for the company, especially in extremely tight credit markets.
Polycom is a leading solutions provider for video conferencing, with an estimated 30%-35% market share. Yet, the company faces pricing pressures as this market is fiercely competitive. Tandberg of Norway is the market leader in this segment. Cisco Systems (CSCO), Citrix Systems (CTXS), 3COM Corp. (COMS) and LifeSize Communications Inc. are other key players. Competition also emanates from lower-cost (mostly Asian) suppliers.
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