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Chat Room Spotlight

Sonic Foundry, a provider of audio and video software and services, makes it second appearance on the Spotlight. The first time was back when it traded on the AMEX as SFO. At that time I thought the company was poised for some explosive growth. Shortly after that was written, the company's stock went on to set its 52-week high of 64 15/16.

What a difference 6 months makes. SOFO is now trading below 9. This time we're not going to take a look at SOFO because of their deflating stock price (although we will discuss that). It's a more self-serving motive. Streamingmedia.com broke a story on Friday about how SOFO was laying off about 5% of its workforce to improve "efficiencies" in light of recent acquisitions. That information set off a firestorm of controversy in the chat boards. But was it such a big deal after all?

In the story, Streamingmedia.com reported that Sonic Foundry has begun to consolidate its staff "primarily in the areas of general administration, sales and marketing".

Posters were quick to respond, check out IAM5000's take on the news: "talk about a bombshell. I guess we have something to discuss this [weekend]".

Some investors looked at the announcement as a positive. Listen to cbsincexec_2000: "It sends a message to the troops that 'we must be productive!' No freeloaders will be tolerated. It shows that mngmt is willing to bust balls. It shows that mngmt is not weak kneed touchie-feelie 'we can't lay anybody off types.'"

Or this by JReidB: "Ok Folks ... someone explain to me why this is a BAD thing???? We have a company that has 2 or more people doing the same job, someone explain to me why we should spend the $$ on both of them? The Company is growing spending $. Should it waste $ also on positions it already has covered? To me this shows good fiscal policy and management."

Whether these layoffs were actually an attempt to improve efficiency or a forced hand because of severe cash shortages, is yet to be known. On August 11th On24.com did a story about Sonic Foundry saying the company may not be around for the long-term. It seems many are concerned that at the current pace, SOFO might not be able to sustain itself until profitability--the burn rate is just to high. That On24.com article came out just after SOFO reported their third quarter results where net losses were $7.5 million, or $.35 per diluted share. The earnings statement also contained this: "After adjusting net losses for total non-cash and integration related charges, the Company projects its financial resources are sufficient to meet its operating needs."

In an article by the Milwaukee Journal Sentinel (SOFO is based in Wisconsin) Ken Minor, Sonic chief financial officer disagreed: "Sonic Foundry has a very strong balance sheet. We've got virtually no debt, and by all balance sheet measures we are strong."

SOFO is trying to move ahead with its business strategies, on August 16th the company introduced two new products, ACID Latin and ACID Techno, to its ACID family of music creation tools. stockup1 thinks "these two additional products should help… I am still long and strong on this baby gorilla. Good fortune to all of us! Go SOFO!!"

Conclusion: The layoffs don't appear to be anything more than good business sense at this point. Especially in light of SOFO's cash position. It is far better to expend energies and resources into new products and acquisitions, as they are apparently doing, than to keep redundant staff.

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