APC to layoff 330 workers globally, 65 in R.I.

This is in addition to 200 to 250 job cuts the West Kingston company announced in June and 66 unannounced job cuts made in Rhode Island.

01:00 AM EDT on Saturday, September 23, 2006

BY ANDREA L. STAPE
Journal Staff Writer

American Power Conversion Corp. plans to cut 330 employees worldwide, including 65 workers in Rhode Island, in the company's second major wave of job cuts this year.

In an attempt to trim operating costs, the West Kingston maker of technology equipment said yesterday it plans to reduce its 8,250-person global work force by about 4 percent, with cuts coming from locations across the globe and from marketing, sales, service, operations and other segments of the business.

Locally, the cuts add up to about 5 percent of the company's 1,300 Rhode Island workers.

In June, APC announced it was cutting 200 to 250 people in Ireland by the end of the year and was reconfiguring manufacturing there. In addition, the company also made 66 unannounced job cuts in Rhode Island in June. The planned jobs cuts announced yesterday will bring this year's total number of layoffs to about 7 percent of the company's work force.

"This is an extremely difficult decision to make, and one I do not take lightly," Rob Johnson, APC's president and chief executive officer, said in a statement yesterday. "But given the company's recent financial performance, it is essential to ensure our continued competitiveness in the market."

APC, which makes equipment that keeps computers running when the lights go out, expects to take $10 million to $12 million in charges for the cuts during the third and fourth quarters of this year.

The company anticipates $32 million in annual pre-tax savings from the layoffs, with $5 million in pre-tax savings during the fourth quarter of this year. It is also expecting to receive a $12-million tax credit, or 6 cents a share, during the third quarter.

APC's stock rose 10 cents yesterday to close at $21.40 a share.

The year has been difficult for APC. In the first quarter, the company's earnings fell 60 percent due in part to increased freight and shipping costs and higher prices for raw materials. In addition, APC increased its inventory by about $47.7 million to fill customer needs as it worked on ironing out distribution and supply issues.

The company has spent significantly over the past few years as it put more focus on selling equipment for the cooling and backing-up of computers in large corporate data centers. Sales and administrative costs rose 11 percent between 2004 and 2005 as the company invested in marketing the new products. But higher costs caused APC's net income to drop during the last three quarters and, during the second quarter of 2006, earnings were down 41 percent compared with the second quarter of 2005.

In August, Rodger Dowdell, the chief executive officer, retired and Johnson was put in place as interim CEO while the company searches for a full-time replacement.

Earlier this month, Matrix Asset Advisors -- which owns about 2.38 million shares of APC's stock -- called on the board to either sell the company or improve communications with shareholders and reassess its strategic direction.

After a year of slumping stock prices, the Matrix letter appears to have jolted investors, sending the company's stock up 26 percent this month.

Yesterday, David Katz, chief investment officer and cofounder of Matrix -- an investment firm -- said the job cuts were a step in the right direction.

"Clearly there is an enormous amount of additional work to do," he said. He said his firm would like more predictable earnings growth and better communications with shareholders.

"It's to the company's credit, during the period of an interim CEO, that they are running the business as efficiently as possible," said Katz.

Eric Landry, a stock analyst with Morningstar, said he hoped the cuts didn't indicate that the company was slowing its efforts to gain market share in the large-systems segment. He said that while investors over the past few years have not been willing to sacrifice short-term earnings growth, APC's investment in the new business area could eventually pay off.

"While it's nice to see short-term results, it's historically not how great wealth has been accumulated," said Landry. "The great investors have been the ones that have been able to look over the valley."

However, Landry said, APC's longer-term strategy remains "opaque" as it searchs for a new CEO. The company is still seeking a permanent top executive, said Debbie Hancock, a spokeswoman for APC. In the meantime, she said, the company is continuing to look at ways to revamp the business.

"We're looking at our business to continue to grow the business but to also drive productivity enhancements and reduce costs -- that's going to be an ongoing activity," said Hancock.

astape@projo.com/ (401) 277-7269