Polycom to Reduce Worldwide Workforce by 11 Percent

The company, which has been under pressure from activist investor Elliott Management to improve its finances, also will shutter some facilities.

Polycom Centro

Polycom is shedding 11 percent of its workforce and shutting down some offices as part of a larger restructuring effort designed to increase profitability.

Officials with the video conferencing vendor, which has been under pressure from an activist investor to improve its finances and return more money to shareholders, said in a filing with the Securities and Exchange Commission (SEC) that most of the impacted employees have been notified and that the job cuts will happen over the next several quarters.

Polycom reportedly has about 3,500 employees.

The company expects to write down charges of between $19 million and $22 million in the current financial quarter related to the job cuts. When factoring in other restructuring efforts—primarily shutting down leased facilities—the overall charges in the fourth quarter could jump to $22 million to $25 million, the officials said.

Among the facilities being impacted is Polycom's office in Israel, which is being shuttered as the company shifts work to regions where wages and other costs are lower.

The moves come just more than a month after Polycom announced third-quarter financial numbers that showed revenue falling 10 percent from the same period in 2014, to $303.1 million, and income coming in at $13.6 million, a 20 percent year-over-year decline.

In a conference call Oct. 21 to discuss the third-quarter numbers, President and CEO Peter Leav told analysts and journalists that a major product launch earlier that month contributed to the weakness in the third quarter as many customers were among those testing the new offerings, while other customers were holding back on new purchases until the new products were released.

Among those new products, which debuted Oct. 7 at an event in New York City that also marked the company's 25th anniversary, was the RealPresence Centro video conferencing product—which puts four video screens in the center of the room rather than in the front—and RealPresence Trio, which adds more collaboration capabilities to the ubiquitous three-point conference phone.

Leav also noted new collaboration software releases and another offering that works with Microsoft's unified communications (UC) solutions.

"These are exciting and significant opportunities for Polycom on multiple fronts, but new product introductions can lead to short-term disruption," the CEO said, according to a transcript on Seeking Alpha. "We believe this likely impacted our Q3 results."

Polycom is operating in a highly competitive and rapidly changing video conferencing space that is seeing more organizations migrate away from expensive conference room systems and toward software- and cloud-based solutions. Businesses also are looking for offerings that can be used in smaller collaboration spaces—including so-called "huddle rooms"—that offer growth opportunities for Polycom and other vendors. Polycom officials, in connection with the product launch in October, noted that there are anywhere from 25 million to 55 million conference rooms worldwide, and only 2 percent to 4 percent are video-enabled.

The changes in the market have forced established players like Cisco Systems, Polycom and Lifesize Communications to build out their cloud and software capabilities, and give rise to smaller competitors like Vidyo, Blue Jeans Network and Zoom Video Communications.

Also during the conference call, Leav noted the company's ongoing efforts to reduce costs through restructuring.

"In 2015, we said we would employ a portfolio approach in order to lead customer success with competitive differentiation," he said. "Our new solutions are certainly evidence of that. We also said we would continue to improve operating margins throughout the year, and we continue to focus our efforts in this area."

Activist investor Elliott Management this year increased its stakes in both Polycom and UC vendor Mitel, and in early October, officials with the hedge fund announced that they were urging the companies to merge to create a larger player in the unified communications and collaboration (UCC) space.

"Elliott strongly believes a combination of mid-tier UCC vendors will create greater scale, significant synergies and meaningful valuation uplift for stockholders," Elliott officials said in a letter to Leav and Polycom's board of directors. "Elliott would be willing to provide financing for Polycom's acquisition of targets in the space, something we have successfully done before."

Polycom officials at the time said they would meet with Elliott to discuss the hedge fund's ideas, but that they would not comment on those talks.

Elliott has turned its attention to other tech vendors as well over the past several years, including EMC, Riverbed Technology, Citrix Systems and Juniper Networks.