INTERNETINFRASTRUCTURE:
Ross Margolies, a fund manager at Salomon Smith Barney, points out that infrastructure companies will be affected by a slowdown in capital spending if investors continue to shun the most speculative of the Internet companies. Here's why: If the flagging 'Netcos are unable to raise more money, they won't be able to keep buying routers and servers and storage devices. That, in turn, would allow their Old Economy competitors to ease up on their 'Net spending, as well. Margolies is confident that capital spending will indeed get deferred under this scenario.
More worrying, perhaps, is that a big part of this infrastructure equipment is vendor-financed. In a recent research note, Morgan Stanley's Barton Biggs said he's been hearing that Cisco will give some of its customers nine-year notes on some of its equipment with no interest or repayment during the first three years. Biggs says some people at the company have acknowledged to him that a good portion of this equipment will be obsolete in three years. We called one of Cisco's customers, ICG Communications of Englewood, Colorado, and the company spokeswoman acknowledged that ICG had a commitment from Cisco for up to $180 million in vendor financing over a "multiyear" period. (Asked exactly how many years, an ICG spokeswoman told us she couldn't disclose that information, under terms of the contract with Cisco.) So, how much of Cisco's business is financed this way? Biggs says he thinks it's somewhere in the neighborhood of 20%.
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