DJ Network Firms Hurt By Continued Capital Spending Cuts
10 Apr 11:08
By Peter Loftus
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The downturn in technology-related capital spending
worsened in the last quarter, hurting the results of data network equipment
makers.
A slew of equipment makers have already warned that their earnings and
revenue for the quarter ended March 31 missed expectations. For the most part,
they blamed the softening economy and a slowdown in orders by
telecommunications carriers and other corporate customers.
"I think it's pretty obvious that first-quarter sales in the various market
segments we track are going to be down from the fourth quarter," said Tam
Dell'Oro, founder of Dell'Oro Group, a Portola Valley, Calif., firm that
researches the network equipment market.
The shortfalls revealed so far have been substantial. Extreme Networks Inc.
(EXTR), Santa Clara, Calif., said last week it expects to report fiscal
third-quarter revenue of $110 million to $115 million, more than 28% below what
analysts were expecting before the warning. Extreme also estimated it lost 6
cents to 8 cents a share in its third quarter. Before the warning, analysts had
expected earnings of 12 cents a share, according to Thomson Financial/First
Call.
Robertson Stephens analyst Paul Johnson now estimates Extreme lost 7 cents a
share, matching the new First Call consensus, on revenue of $110 million. A
year earlier, Extreme earned 8 cents a share on $67.3 million in revenue.
Extreme is scheduled to release results April 18 after 4 p.m. EDT.
Other networking companies that have preannounced weaker-than-expected
quarterly results include Redback Networks Inc. (RBAK), Sycamore Networks Inc.
(SCMR) and Foundry Networks Inc. (FDRY). In addition, 3Com Corp. (COMS) last
month reported results for its fiscal third quarter ended March 2 that were in
line with reduced expectations.
Cabletron Systems Inc. (CS) has been the onlybright spot; last month it
reported better-than-expected fiscal fourth-quarter results.
The biggest question marks surround Cisco Systems Inc. (CSCO) and Juniper
Networks Inc. (JNPR). For Cisco's fiscal third quarter ending in late April,
analysts expect it to post its first year-over-year earnings decline in several
years, and its first sequential quarterly revenue drop since 1996.
There have been ample signs of weakness at Cisco, San Jose, Calif. In
February, the company reported fiscal second-quarter results that missed
analysts' estimates, and it lowered expectations for the rest of fiscal 2001.
Last month, Cisco said it would cut up to 8,000 jobs, or 17% of its work force,
in a move to reduce expenses.
What's more, Chief Executive John Chambers has made cautious comments about
the current quarter on several occasions. He told an investor conference here
in March that the pace of customer orders in the first half of the quarter
hadn't picked up since January.
Cisco gave its last concrete guidance in February, when it said it expected
third-quarter revenue to be either flat with the second-quarter's $6.75 billion
or 5% lower. Third-quarter gross margins were expected to fall to 60% from
61.8% in the second quarter.
Cisco hasn't given a formal update since February, despite ongoing rumors
that the company will preannounce weaker-than-expected results. There are still
three weeks left in its fiscal third quarter. Cisco is scheduled to release
results May 8.
But most analysts haven't waited for the company to change its forecast.
Credit Suisse First Boston analyst Lissa Bogaty lowered her estimate of Cisco's
third-quarter earnings to 5 cents a share, excluding goodwill amortization and
other items, from her original view of 11 cents a share. Analysts surveyed by
First Call estimate Cisco will earn 8 cents a share, down from 14 cents a year
ago.
Bogaty also is calling for a far steeper revenue decline than Cisco's
forecast. She estimated third-quarter revenue will be $5.16 billion, nearly
24% lower than the second quarter and well below the First Call consensus of
$6.06 billion. In the year-ago quarter, Cisco's revenue was $4.92 billion.
"All the telecom equipment companies are seeing this weakness," Bogaty said.
"The carriers seem to have frozen their budgets."
One of Cisco's fiercest competitors, Juniper Networks, has bucked trends in
previous quarters. In January, it reported fourth-quarter 2000 results that
trounced analysts' estimates and raised expectations for 2001 results.
But analysts are doubtful that Juniper, Sunnyvale, Calif., did as well in the
first quarter. They say Juniper isn't immune to the sector downturn, and that
even if it meets expectations, it will probably scale back its 2001 outlook.
Juniper should earn 25 cents a share, excluding goodwill amortization and
other items, for the first quarter ended March 31, estimated Tom Lauria, ING
Barings analyst. That matches the First Call consensus and is well above the 3
cents a share posted a year earlier. Lauria estimated Juniper's first-quarter
revenue rose to $335 million from $63.9 million last year, although he said is
forecast "could prove to be optimistic."
Lauria suspects Juniper may lower its 2001 outlook because of continued
spending cuts by telecom carriers. In particular, Worldcom Inc. (WCOM) said in
late March it expects its 2001 capital expenditures to be lower than expected.
That's bad news for Juniper because Worldcom was Juniper's biggest customer in
the fourth quarter, contributing 18% of Juniper's revenue.
"We're seeing more indiscriminate spending cuts and purchase delays," Lauria
said.
Juniper is scheduled to release results Thursday morning.
-By Peter Loftus, Dow Jones Newswires; 201-938-5267;
peter.loftus@dowjones.com
(END) DOW JONES NEWS 04-10-01
11:08 AM |
