Heard on the Street September 8, 2000
Investors Worry Telecom Woes
Will Hurt Equipment Suppliers
By SUSAN PULLIAM and SCOTT THURM
Staff Reporters of THE WALL STREET JOURNAL
What goes up in tandem, it serves to reason, would come down in tandem.
That is what has gotten some investors worried this week about Internet
infrastructure stocks. The problem? Telecommunications companies have
hit a rough spot, and their stocks show it, with many way off 52-week
highs. Meanwhile, equipment suppliers, whose success was fueled in large
part by the robust spending of the telecoms, are still at nosebleed
valuations.
Now the question: Will the troubles of the telecoms bring down the
equipment suppliers -- Cisco Systems, Nortel Networks, Juniper
Networks, Sycamore Networks, to name just a few -- that have thrived
on their growth?
Behind the swoon in telecom stocks is slowing revenue in the companies'
traditional businesses and financing problems among the upstarts. That is
causing investors to wonder if the next shoe to drop is a slowdown in the
growth of spending by these companies for equipment for the Internet
build-out.
The question of a potential slowdown in equipment spending has been
kicking around Wall Street for several months. Some analysts say it is one
of the reasons that shares of Cisco, until recently the undisputed market
leader, have drifted sideways since late spring.
This week, however, such concerns came front and center after Ciena, a
supplier of fiber-optic equipment to telecom companies, reported it will
take a fourth-quarter charge as a result of a bankruptcy filing by one of its
clients, a European telecom carrier. Its shares fell 6% on the news.
The same day, a Morgan Stanley telecommunications analyst, Simon
Flannery, warned clients that increases in capital spending by telecom
companies may slow next year from about 30% this year to a figure more
in line with single-digit revenue growth at those companies. Other
equipment-manufacturers' stocks have slipped a bit on the news, including
Sycamore Networks, which fell on the Nasdaq Stock Market from an
opening on Tuesday at around $135 to $122.88 Thursday, while Juniper
Networks fell from an opening price of $221 on Tuesday to $214.88
Thursday. On the New York Stock Exchange, Nortel dipped from an
opening price of $79 on Tuesday to $76.63 Thursday.
The developments highlight the symbiotic relationship between the telecom
carriers, which aim to lay massive networks of transmission pipes to handle
growth in data transmissÿÿÿ |
