INTRO TEXT
Sitting in an austere conference room at the Sonus Networks headquarters in Westford, Hassan Ahmed speaks with calmness and confidence, but his tone strains against an unnerving reality. The president and chief executive officer of Sonus, which makes equipment that allows voice telephone calls to be carried on data lines, has gone through a financial meltdown.
Hassan Ahmed: “overreaction” may
have shot down Sonus stock.
Not long ago Sonus stock was soaring, hitting a peak of more than $93 per share in August 2000. But during this past August, its shares traded at less than $1. Various factors contributed to the plunge, but it didn’t help that two of Sonus’s biggest customers–Qwest Communications and now-bankrupt Global Crossing–showed up on the growing list of companies accused of fraudulent accounting.
“It’s no secret who our large customers are,” Ahmed says. “And to the extent they have difficulties, investors draw the conclusion they will have an impact on Sonus. Is it an overreaction? Well, it would be hard for me to believe that my stock is accurately valued right now.”
The accounting scandals that rocked Wall Street left their mark on Massachusetts in numerous ways. The Enron debacle spelled doom for its auditor, Arthur Andersen, which had a large Boston office, and FleetBoston Financial wrote off nearly $600 million in bad loans to scandal-scarred companies. But in the state’s battered telecommunications sector, the impact has been particularly severe. Already reeling from a slump in demand for telecom gear of all kinds, companies like Sonus watched in horror as their key customers made headlines for financial shenanigans, then felt the backlash from their own skittish shareholders.
“Investors feel like it will be a matter of years before the problems at WorldCom and Qwest and others work their way through the system,” says Ron Sege, CEO of Merrimack, NH-based Ellacoya Networks and chairman of the Massachusetts Telecommunications Council. “That’s impacting companies like ours, our ability to get capital.” Sege says his company, which is privately held, has cut its work force, and other telecom companies, from Sonus to Chelmsford-based Sycamore Networks, have done the same.
Burlington-based Lightbridge, which provides software and services to wireless phone carriers, decided to take the hit early in hopes of softening the blow. When WorldCom, in late June, admitted to hiding nearly $4 billion in expenses, Lightbridge had just finished $2 million worth of work for the telecom giant. Just three days later, Lightbridge announced it would write off the WorldCom debt in its upcoming earnings report. The company also announced 65 layoffs and the closing of a facility in Waltham.
“Bad news is not like wine,” says Harlan Plumley, Lightbridge’s chief financial officer. “It doesn’t improve with age.”
Lightbridge shares fell sharply after the announcement, but CEO Pam Reeve says quick disclosure protected the company from worse damage on the Nasdaq. “We were able to put boundaries around our exposure,” Reeve says. “That probably helped us compared to other companies, where you don’t know how big the problem is going to be.”
Lightbridge will survive the WorldCom debacle, Plumley and Reeve say with confidence. But are they angry at their former customer for playing them, as well as Wall Street, like suckers?
“I guess I have some empathy for individuals caught in those situations,” Plumley begins, trying to be diplomatic. “But if [former Enron CEO] Jeff Skilling and [CFO] Andy Fastow and the CFO at WorldCom are ever found floating in the bay, you might look to CFOs of public companies as the likely culprit.”
Indeed, the financial tricks played at Enron and WorldCom mean that any company’s numbers are now subject to suspicion. Sonus Networks is now facing class-action lawsuits accusing the company of misleading investors about its financial condition, but Ahmed dismisses them as the work of greedy lawyers. “There’s a reason they call them’ambulance chasers,'” he says.
Elizabeth Ames, who recently stepped down as the state’s director of economic development, is still upbeat about the telecom sector’s prospects, but she admits that the scandals have dimmed the chances of a rapid recovery. “This lack of confidence in the numbers will continue to have a ripple effect,” says Ames. “It’s like a wave. It passes over you, and you eventually go on with your business, but it keeps traveling.”
Michelle Wheeler, director of business development at Lightbridge, will be happy when telecom’s entanglement in the accounting scandals is no longer a topic of party conversation. “You end up having to defend the industry as a whole because of what’s going on at WorldCom,” she says. “It’s frustrating.”
Stephen Hochbrunn is a freelance writer in Boxford.