Losses stemming from the international economic slowdown have hit Varian Semiconductor Equipment Associates, Cape Ann's largest private employer, twice as hard as company officials expected a few months ago.
The Gloucester-based maker of microchip-making tools yesterday revised down its estimated earnings for the first fiscal quarter of the new year by around $15 million, while more than doubling the projected losses for the same three-month period, which ended last week.
When it announced earnings projections for the end of the 2008 fiscal year in early October, Varian anticipated revenues of between $115 million and $125 million, with an operating loss of $6 million.
The revised earnings projections released yesterday placed revenues between $105 million and $110 million, and operating losses between $14 million and $16 million.
In a statement accompanying the earnings revision, Varian said a steeper than expected decline in equipment sales worldwide, including sharp drops in purchases of spare parts, had led to the poorer earnings.
Vice President and Chief Operating Officer Bob Halliday said by phone yesterday that the uncertainty and weakness of the global economy was forcing the company to continue cutting costs.
"We are in largely uncharted waters," Halliday said. "I think the company is in good shape, but we don't know how deep the downturn will be. We are losing money right now."
Varian's 2009 fiscal year began Oct. 4, and the first quarter ended Jan. 2.
To compensate for the loss of revenue throughout its industry, Varian has taken cost-cutting measures including plant shutdowns, reduced bonuses, a salary freeze, the postponement of plans to build a large wind turbine and significant layoffs.
The company has declined to release details of specific layoffs, but Halliday said yesterday that during 2008, when the economy plunged into recession, Varian had cut roughly one-third of its workforce by letting go a combination of permanent employees and contractors.
Since the company's peak employment of just over 2,000 employees in the fall of 2007, Varian has lost more than 600 workers, now down to around 1,400 worldwide. The bulk of the company's operations take place in its Blackburn Industrial Park plant, with a smaller training facility in Newburyport and other locations in Asia.
The company now employs between 850 and 900 workers overall in the Gloucester and Newburyport facilities, Halliday said.
In its press release announcing the earnings revision, Varian said it had cut its operating expenses from $59.9 million in the beginning of October to $50 million currently. The company said it expected to trim costs to $45.5 million by the beginning of April, posing the possibility of more layoffs to come.
Halliday said another week-long plant shutdown was likely in February, during the week Massachusetts public schools go on vacation. The shutdowns are a way for the company to reduce the size and frequency of layoffs, he said.
"My sense is that 2009 is going to be a slow year," Halliday said. "We will probably have more shutdowns to protect jobs."
While the downsizing of the company has reduced operating expenses, the restructuring itself has cost the company around $5 million in one-time expenses from costs such as severance payments, health care costs, rental agreements, writing off inventory and closing facilities.
The windmill project includes building two 30-story turbines at the Blackburn plant that would be the tallest in Massachusetts, and are planned to cut Varian's energy costs. The windmills were granted permits from the city in October 2007 and at that time it was estimated that the project could be built in 16 months.
Rick Johnson, Varian's director of facilities, said yesterday that the project was "on hold" until the economy improves or the cost of the turbine equipment drops.
Despite the worse-than-expected earnings news, Varian officials have maintained that the company's strong share of its market and cash reserves put it in good position to weather the downturn and make money when the economy rebounds.
Halliday said the company was still optimistic about the windmill project.
"We are trying to protect jobs, not planning much for bonuses, investing in research and development and trying to grow the company," Halliday said.
Patrick Anderson can be reached at panderson@gloucestertimes.com.
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