Hi gruetz:
Frankly, I think the situation looks very grim.
I encourage you to look at the big picture. From
this perspective, old line telco companies (T, WCOM,
FON, DT... ) are all at 52 week lows but T and WCOM
look like they have stabilized. The Baby Bells
have also stabilized and look better (some folks will
object to it, but Qwest can be viewed in part as a Baby
Bell). On the other hand all CLECs and many of the
next generation fiber stocks are very sick. What is
killing the sector is the overinvestment scare
(like the addition of new networks like PF.Net)..
Investment types see a bunch of companies spending
money like crazy while pricing collapses. Today
the market started going after the guys who
sell equipment to all competitive telcos-- look
at what happened to NT, CORV, SCMR, and even LU
and CSCO! Clearly what is being factored in
is a sharp reduction in CapEx.
I am very concerned and do not see a V bottom
like in October 98. What the industry needs is
a moratorium on new networks, the completion of existing
networks as inexpensively as possible, and then let
demand for BW (which increases rapidly) catch up
with the supply. This is a long drawn out process
that will take about a year to work itself out
(although stocks look always way ahead so that
the stock market bottom is always several
months before the bottom in the sector
fundamentals). Also, it seems clear that some
consolidation will take place, i.e some companies
will go under (ESPI?) or will be recapitalized under
very dilutive terms (ICGX?) In this process, even the
better companies may be treated with suspicion.
Currently, I do not see $20 as the bottom. The
pain will be much worse (sub $15 at least).
Note in particular that NXLK and MCLD have not been
hurt too badly yet. They will need to go down before
a bottom is formed.
This is not a correction, but a major telecom
bear market similar to a) the semi bear market
from October 97 to October 98) and b) the oil
bear market from early 98 to March 99. An
additional factor to watch out is the state of the
overall market. Given the weak Euro, the high oil
prices are devastating for Europe and the ECB will
probably need to raise interest rates, creating
the possibility of a recession. If Europe goes
down, Japan will follow, and we will be in major
trouble. If the US hits a recession, all bets are off
regarding Winstar's survival.
Hopefully, I will be proven wrong, but a lot of things
could go bad for Winstar, many of which out of
the company's control.
Best regards,
Bernard Levy |
