As an admired newcomer to the whizzy world of telecommunications, Marconi was all the rage

Earlier this year, Marconi shares were trading at �12.50, enjoying the premium rating that stockmarkets attach to go-go stocks in fashionable sectors.

As an admired newcomer to the whizzy world of telecommunications, Marconi was all the rage.

Now, however, its the workers and shareholders who are raging, after the company announced late on Wednesday another 4,000 jobs cuts worldwide (it has already shed 4,000 this year), and signalled that profits will be 50% lower this year than last.

How did the company and its golf-loving chief executive Lord Simpson get it so wrong?

Remember the cash pile?

The answer begins in 1996, when Simpson was brought in to what was then GEC to take over from its founder, Lord Weinstock.

For 30 years, GEC, which owned the Marconi business, had largely been a defence contractor. It had a reputation for being risk-averse and ultra-conservative with money.

Weinstock had built up a cash mountain of �2bn and was frequently criticised for not ploughing it into assets that delivered a higher return than bank deposits.

Simpson quickly set about dismantling the Weinstock legacy.

As a former British Aerospace director, he knew all about the defence business - and he wanted nothing to do with it.

Following fashion

Marconi bought telecoms assets as if they were going out of fashion ... unfortunately, they were.

In January 1999, he sold off GEC's defence operations for �7.7bn and used the cash to embark on a spending spree in telecoms, mainly in America.

To reflect its new direction, GEC was rebranded Marconi and for a while the stockmarket loved it. Simpson continued to buy telecoms assets as if they were going out of fashion.

Unfortunately for him, they were.

The combination of massive overcapacity, a worldwide slowdown and the negative effect on telecoms operators, such as BT, of having to pay for third-generation mobile-phone licences meant that Marconi's customers needed to cut back drastically on equipment expenditure.

Many of Marconi's rivals saw this coming.

In the first quarter of 2001, a slew of international telecoms groups such as Nortel, Alcatel, Nokia and Ericsson flagged that sales and profits would be down.

Marconi, however, clung to the belief that somehow it could dodge the bullets.

Misplaced optimism

As recently as May 16, Simpson told shareholders: "We anticipate the market will recover around the end of this calendar year, initially led by European established operators. ... we believe we can achieve growth for the full year, as a result of our relative strength supplying these operators."

That optimism now looks to have been a colossal misjudgment.

Few companies can swim against a tide of this magnitude and Marconi is certainly not amongst them.

Having failed to plug into the mood and sentiment of their customers, Simpson and his deputy John Mayo now face serious questions from institutional investors, who have lost faith in Marconi's strategy.

Clumsy PR work

Doubts over management competence have been exacerbated by the clumsy handling of Wednesday's share suspension and Simpson's admission that it had "created more of a drama than we expected".

By delaying the inevitable - a profits warning - and then bungling its execution, Simpson and Mayo have dug themselves a huge hole. Getting out of it will be a monster challenge.

Meanwhile, many loyal Marconi shareholders, who have been with the company since the "boring" GEC days, will look back to Weinstock's cashpile and wish it still existed.

Sadly, it has been replaced by �2.5bn of debt and underperforming assets.

Not a good combination.