Another round of telecom profit warnings said likely
By Ben Klayman
CHICAGO, March 29 (Reuters) - Telecommunications equipment
giant Nortel Networks Corp.'s troubles may spark
a new round of profit warnings in the industry, analysts and
portfolio managers said on Thursday.
In an industry slammed by declining customer spending and
an overall economic slowdown that is spreading overseas,
Nortel's slashing this week of its first-quarter profit
estimates may set the stage for similar actions by telecom
customers, suppliers and competitors, analysts said.
Among those likely to warn, analysts and portfolio managers
said, are New Economy bellwethers Cisco Systems Inc.
and JDS Uniphase Corp. , both of which already
have either warned of the slowdown's impact or cut estimates.
"All the companies are in the same boat and the boat is
taking water a little bit," said Stephen Gauthier, portfolio
manager with Pictet & Cie in Montreal.
Other prime candidates include France's Alcatel ,
telecom equipment giant Lucent Technologies Inc. and
Sweden's Ericsson , the No. 3 maker of cell
phones behind Finland's Nokia and Motorola
Inc. , analysts said.
Cisco, JDS Uniphase and Lucent officials declined to
comment, while those at Alcatel and Ericsson couldn't be
reached.
The problem is the economic slowdown that led many U.S.
carriers to cut or delay capital spending, ING Barings analyst
Tom Lauria said. That problem has begun spreading overseas.
"The telecom service provider environment is so difficult
right now that every dollar of spending is being extremely
scrutinized," he said.
Cisco has lately pointed repeatedly to the overseas impact,
a sign that many analysts said is the networking giant's subtle
way of warning them to cut their profit forecasts for the
upcoming fiscal third quarter.
The San Jose, Calif.-based firm's exposure to smaller
customers -- now being squeezed in the slowdown -- led Chris
Bonavico, portfolio manager of the $200 million Transamerica
Premiere Aggressive Growth Fund, to sell all his Cisco shares
last year.
"Everything is slowing down," he said. "Telecom is slowing
down the hardest because it's got too much easy money lent and
invested in the sector, so it's going to feel the most pain."
JDS Uniphase could cut its third-quarter estimates a third
time based mainly on the fact that it is a major supplier for
Nortel, analysts and portfolio managers said.
Alcatel hasn't cut profit or revenue forecasts, but that
may not last as the slowdown spreads to Europe and Asia where
the French cell-phone maker collects most of its sales.
Profit margins are being squeezed as companies suffer with
smaller markets and more intense competition, analysts said.
The broader-based companies will be the first to cut their
estimates, Lehman Brothers analyst Steven Levy said.
Cisco may make a profit warning next week, followed by
Alcatel and Lucent, he said. Speculation also has centered on
British telecom equipment maker Marconi Plc.
"Every company in this sector is a candidate to
pre-announce (lower earnings), even companies that have already
pre-announced," Sanford Bernstein analyst Paul Sagawa said.
Some analysts and portfolio managers said that even
companies so far unaffected by the slowdown -- Ciena Corp.
, Juniper Networks and Redback Networks Inc.
-- may eventually be hurt. Juniper and Redback
declined comment, Ciena couldn't be reached for comment.
"The slowdown has not found the bottom yet, so most
companies that warned once in January or February and their
business is continuing to deteriorate, they will be back for
more warnings," said Jaye Morency, portfolio manager with
Boston-area investment advisor David L. Babson & Co.
REUTERS
Rtr 20:18 03-29-01 |
