2nd UPDATE: Comverse Shares Down 32% On Bookings Drop, Cash Flow

Comverse Technology Inc. (CMVT) lost more than a half-billion dollars of market value Friday after the maker of telecommunications software said it was losing money and facing the potential of operating at deficit in less than two years.

In response, Comverse said it is cutting jobs and hiring a financial adviser. The company's diminishing cash holdings and deteriorating business raises questions about a once high-flying stock, which has been stuck for years dealing with accounting issues and an options backdating scandal.

"While we have stood by the company for over four years as it has attempted to navigate its way through its delisting and attempted restatement, we are throwing in the towel on our buy rating after the latest disclosure highlights an ongoing burn rate and operating loss level that exceeded our expectations," Stifel Nicolaus analyst Tom Roderick said.

In a filing with the Securities and Exchange Commission, Comverse said its net cash fell to $327 million as of July 31, down from $371 million at April 30 and $448 million at Jan. 31. During the quarter ended July 31, Comverse spent about $39.1 million on professional fees for the restatements, $17.7 million on a settlement of a securities class action and derivatives actions, and $2.5 million in restructuring, including layoffs.

"The company's spending money like rock stars," FBR Capital Markets analyst Daniel Ives said. "It's jaw-dropping."

According to the filing, the company expects its net cash to be about $100 million by the end of the quarter ending April 30, 2011, including estimated restricted cash of about $60 million.

Comverse also announced "a reduction in staffing levels" but declined to say how many people would be affected. The company didn't immediately respond to interview requests. FBR's Ives said the cuts were "long overdue."

The news "shows that the uphill battle for the company (and its shareholders) could be getting steeper over the coming year," Ives said, adding that the company may be forced to sell off parts.

Along those lines, Comverse said in the filing it had hired Goldman Sachs Group Inc. (GS) as a financial adviser to assist in exploring strategic and capital-raising alternatives. Ives said exploring possible transactions could help investors in recognizing "trapped value," such as subsidiaries Verint Systems Inc. (VRNT), an analytic software-based solutions provider, and Ulticom Inc. (ULCM), a software service provider.

Besides selling assets, Comverse also is considering issuing more equity, taking out loans or further restructuring.

The company said unless one or more of its initiatives pan out, its cash forecast for the fiscal year ending Jan. 31, 2012, reflects a potential shortfall of about $50 million in the cash required to support the working capital needs of the business during the quarter ending that date.

Investment firm Soros Fund Management bought a 5.1% stake in the company on July 7.

-By Emily Glazer, Dow Jones Newswires; 212-416-2913; [e-mail]

(Dan Gallagher contributed to this article.)