Billing and messaging firm Comverse Technology has sparked a run on its shares after revealing it may run out of cash.
The Massachusetts firm’s stock price dived 31.7% to $4.90 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. Its stock recovered 6.12% to close at $5.20 Monday.
Comverse warned in a filing to the US Securities and Exchange Commission (SEC) that it could face a $50 million shortfall in cash by next April.
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.
Comverse is still recovering from an options booking scandal that claimed the scalp of CEO Kobi Alexander in 2005. The company and Alexander last year settled a class action from investors for $225 million.
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.
In a letter to employees CEO Andre Dahan described the result as “disappointing” and said company aimed to cut $45 million in costs by the end of the year.
He expected India sales to pick up after the government ends its freeze on telecom equipment purchases.
However, cash reserves could be $50 million short by the end of the April 2011 quarter 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.”
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