ESS Technology Inc. (Nasdaq: ESST) shares climbed 10 percent, or 14 cents, to $1.50 in Tuesday’s afternoon trading after the company issued a press release chalked full of guidance, reorganization plans, and word of possible liquidation.The digital video processor and imaging sensor chip maker previously projected a second-quarter loss between 13 cents to 16 cents per share, and is now narrowing the loss to a range of 6 cents and 10 cents. The company also raised the bar in revenue projection, forecasting $15 million to $19 million, up from an earlier anticipation of $15 million to $19 million, straddling analysts’ estimates of $17.2 million.
The updated guidance could reflect the company’s talk of possible liquidation and slashing 67 percent of its payroll.
“Basically, we’ve gotten out of the mass market and are addressing more niche market issues,” ESS Technology spokesman Jim Boyd told MN1. “We’re drastically reducing our operating expenses as we shrink the overall size of the company. Now we are looking at the remaining parts of our business.”
ESS Technology announced today it is considering a total liquidation of the company lifting its head to face tough foreign competition in the fabless semiconductor business. Liquidating could bring the company between $6 million and $12 million – a small crack against the $50 million it owes in debt, but a start regardless.
“The company for quite some time has been losing money,” said Boyd. “Due to the very competitive industry we’re in … foreign companies have a lot of cost advantages over U.S.-based companies.”
ESS Technology sold its high definition DVD technology for $13.5 million and its other DVD products for $2 million (which is not included in the aforementioned guidance) and has continually shortened its payroll from 500 employees last year to 168 today. Letting go of more than half its workforce allowed the company to cut its operating cost in half, to roughly $8 million for the three-month period ended June 2007.
Today the company also gave an update regarding an announcement from November 2006 in which it said the board of directors would reorganize operations and shift business gears to enhance its long-term viability.
“We’ve been trying to find a winning strategy … to pursue to make the company profitable again,” Boyd said. “In the latter part of 2006, we decided we would reorganize the company and shrink it down, because we felt the other companies we were competing with were too large and too complex [for us to work against].”
Since then ESS has sold its BlueRay/HD-DVD technology for $13.5 million, licensed its latest standard definition DVD products for $2 million (plus royalties) and ceased operation of its cameraphone division.