Comverse hit by cash crisis
Comverse Technology sparked a run on its shares Friday, after revealing it may not have enough cash to see it through the next two years.
The firm’s stock price dived 31.7% to $4.90 (€3.82) by the time markets closed on Friday, after it revealed its net cash fell from $371 million at end-April to £327 million by end-July in a filing with the US Securities and Exchange Commission.
Comverse issued the note in lieu of full results for the three months to end-July, which it delayed until September.
It predicted net cash would fall to just $100 million by end April 2011, WSJ.com reports.
The gloomy outlook, combined with a drop in orders for the firm’s voicemail and messenger software, prompted an immediate loss of faith from analysts, with Stifel Nicolaus cutting the firm from “buy” to “hold” after four years tracking the firm, according to Business Week.
Those four years have been a tough time for Comverse, which is still recovering from an options booking scandal that claimed the scalp of its CEO in 2005.
The firm said it has hired financial advisors to steer it through the current cash crisis, and would consider selling assets or issuing fresh equity to stay afloat.
However it said its cash reserves could be $50 million short by 2012 if those initiatives fail.
Analysts at Gerson Lehman Group were skeptical about Comverse’s plan, calling the cost-reduction targets “very ambitious,” and noting that cost cutting can “consume cash in the short term.”