MARKETS HIT BY FRESH TELECOMS FEARS AND US-SINO FRICTION
2001-04-05
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STOCK MARKETS registered heavy losses again yesterday as technology shares continued to slide. The telecoms sector was hit by fresh concerns over the mounting costs of building third-generation (3G) mobile phone networks.
On Wall Street, the Dow Jones index closed 292 points lower, hit by a spate of profit warnings from technology companies, job cuts and mounting US-China tensions. The technology-laced Nasdaq tumbled 109.97 points, breaking through the psychologically key 1,700 mark and suffering its worst close since late October 1998.
In London the FTSE 100 index suffered its third-biggest points loss of the year, closing down 155.4 points at 5,463.1, wiping some pounds 36bn off the value of blue-chip companies.
Worries over 3G costs were fuelled as telecoms equipment makers stumped up cash for mobile phone operators for the second day running. This time, Nokia, Alcatel and Ericsson are providing 3.4bn euros (pounds 2.1bn) of vendor finance among them to fund the construction of Orange's 3G, mobile networks in the UK, France and Germany. Orange placed equipment orders worth a total of 2.3bn euros with the three companies.
Shares in Nokia fell 7 per cent as investors took fright that it was bearing the brunt of the financing burden, even though a spokesperson said it had now announced the bulk of such deals. Shares in Ericsson slid 6 per cent while Alcatel lost 9 per cent, the latter was also hit after announcing plans to cut 1,100 jobs in the US, representing some 5 per cent of its US workforce. Marconi, the UK-based telecoms equipment maker, fell 12 per cent to 300p.
In the UK, investors, who had been concerned by the high costs to telecoms companies of buying 3G licences, feared those entry costs would be significantly exacerbated by network buildout costs. The 3G networks are expected to offer consumers faster transmission speeds, always-on internet connections and other services such as video-over-mobile.
Orange announced yesterday that it had awarded three-year contracts worth a total of 2.3bn euros among the three manufacturers and that they, in turn, had agreed to provide 150 per cent vendor financing. The companies would not disclose the details of the financing arrangements.
The Orange deal is the second major vendor finance deal in as many days. On Monday, Hutchison 3G secured pounds 3.6bn in financing from a combination of bank, vendor finance and shareholder sources. The vendor finance part of that deal from Nokia, NEC and Siemens totalled pounds 777m although Nokia again provided the bulk of around pounds 460m.
However, Orange, unlike Hutchison 3G, has not asked banks or shareholders for cash.
John Allwood, executive vice president of Orange UK, said: "We've secured 150 per cent vendor financing and this was one of the considerations we had when we were choosing our suppliers but it was merely one of the considerations we had."
Richard Edwards, a telecoms analyst at Schroder Salomon Smith Barney, said he was surprised by the level of vendor financing in the Orange deal. "We don't know, as yet, why it's so high."
An analyst who did not want to be named said Orange was obviously going to its suppliers for money since "the financial markets are packed to the gills with telecoms financing".
Orange awarded Nokia the biggest contract, worth 1.5bn euros, and it is providing financing of "over 2bn euros". Ericsson's contract was worth around 500m euros, meaning it will pay out around 750m euros while Alcatel's contract was worth "slightly under half a billion (euros)".
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