Legato Gets Leaner

Storage software vendor Legato Systems Inc. (Nasdaq: LGTO) has slashed between 5 and 6 percent of its workforce in an attempt to reduce operating costs, the company said Wednesday (see Legato to Lay Off 5-6% of Staff).

Wall Street cheered the move: The company saw its shares jump nearly 10 percent in morning trading Thursday, to $6.66 per share.

Legato says it expects to take a $3 million to $4 million charge during the current quarter in connection with the cuts, which will bring Legatos headcount to between 1,480 and 1,500. That's down from 1,563 employees at the end of its first quarter last month.

The pink slips started going out yesterday, according to Sandy O’Halloran, Legato's VP of investor relations. "The layoffs are across the board and worldwide, and affect all layers of the organization from the top to the bottom," she says.

Since the headcount changes include both "realignments" -- in which people are reassigned to new positions in the company -- and the old-fashioned boot, O’Halloran says the company is unable to give a specific number for how many employees have been affected.Legato has been systematically winnowing down its employee base over the past year. Last July, Byte and Switch learned that the company had quietly laid off 85 employees (see Legato Thins the Herd). At the time, a company spokeswoman said the action brought the company’s headcount to 1,639, meaning that the shearing has continued since then.

Legato insists the announced cuts won’t hurt its pro forma revenues, which it expects to grow by 20 percent in 2003. So can we assume that if Legato continues to grow its sales, it will cut even more jobs?

While Legato's employees probably aren't happy with the trend, industry analysts congratulated the company on Thursday for its cost-cutting measures.

"After a long period of speculation and distraction, we think this move likely signals an increased intensity on building shareholder value through old-fashioned organic revenue growth and improved margin leverage," writes RBC Capital Markets analyst Robert Montague in a note Thursday. The analyst firm raised its earnings estimates for Legato on Thursday, boosting its price target for the company to $8 a share. RBC's fiscal year 2003 revenue estimate remains at $314 million, but it doubled its fully taxed EPS estimate to $0.08 per share (from $0.04 per share previously).

— Eugénie Larson, Reporter, Light Reading