The company reported fourth quarter revenues fell to $10.2 million, down from $13.6 million for the comparable 1997 period. The company lost $6.6 million or 23 cents a share, much worse than Wall Street's consensus of a 15 cents a share loss, according to First Call.
Bad news has buffeted Cylink since November, when its CEO and top sales executive resigned and the company said it would drastically restate earnings for two quarters. In January, it restated those results but had to change the last quarter of 1997 too.
"They're in a tough spot because they're in a growth industry, so you don't want to slash and burn headcount because they won't survive that way," said Howard Smith, who follows the company for First Analysis. "But given their cost structure, they're not going to return to profitability anytime soon without doing that."
With a wave of consolidation moving through the security industry, Cylink might be a potential takeover, but its core business, encryption hardware for financial institutions and government agencies, isn't a high-visibility market.
"It's not perceived as a real hot market that most companies would acquire to get into," Smith said.
Roy Lobo, analyst for Moors & Cabot, Dakin, faults the company for lack of a virtual private network (VPN) product, saying it's stuck on securing leased lines, an older technology.
"They have a difficult, difficult road ahead of themselves," Lobo said, acknowledging the company has strong technology and a solid customer base. "There has to be a move inside the company to straighten itself out, and I don't see that happening."
The company's comeback plan includes building on its knowledge of public key infrastructure (PKI) technologies, which involve issuing and managing digital IDs and encryption keys that vouch for the identities of people online. PKIs are a hot market where players like VeriSign, Entrust, RSA Data Security, and GTE CyberTrust contend.
Cylink has built a PKI system for the U.S. Postal Service to allow vendors to sell postage over the Internet.
CEO William Crowell, who termed 1998 "disappointing," re-emphasized the company's intent to add new capabilities to its PrivateWire software designed for Internet security and to add new, standards-based hardware products. It currently offers products for high-speed ATM, frame relay, and leased line security.
The company expects a "sizable loss" this year and a return to "sustainable profitability" in 2000.