Cisco, Rivals Face Down a $16 Billion Slowdown
RELATED SYMBOLS: (NT)(LU)(SBC)
Oct 22, 2001 (TheStreet.com via COMTEX) -- SBC Monday became the fifth
big-spending phone company to slash its 2002 spending plan by 20% or more.
Now, with only two of the nation's top-seven phone companies yet to be heard
from, networking gearmakers Lucent , Nortel and Cisco face a 2002 sales market
that looks to be about $16 billion lighter than this year.
Needless to say, with some of those stocks trading at less than a 10th of their
year-ago values, the networkers and their investors can ill afford a prolonged
steepening of spending cuts.
And with most of the new generation phone and Net builders either belly-up like
360networks, Winstar, PSINet, or hanging on by a fiber like XO , Global Crossing
, Williams and Level 3 , the only meaningful equipment purchasing will come from
the big seven old-line telcos. And judging by their comments, those companies
will be buying a lot less gear than their suppliers are used to.
Cutting Back
Phone companies' plunging capital spending projections ($billions)
Company 2002 2001 % change $ change
Verizon (VZ:NYSE) $14* $17.5 -20% -$3.5
AT&T (T:NYSE) 11 14 -21 -3
SBC (SBC:NYSE) 9.6 12.0 -20 -2.4
WorldCom 5.8 7.5 -23 -1.7
(WCOM:Nasdaq)
Qwest (Q:NYSE) 5.5 8.5 -35 -3
BellSouth (BLS:NYSE) 4.6* 5.7 -20 -1.1
Sprint (FON:NYSE) 4.0 5.4 -20 -1.4
Total 54.5 70.6 -22.7% -16.1
*Company has offered no projections; 2002 figure extrapolated, assuming a 20% cut from 2001 level.
Source: Companies, Detox.
The industry's spending contraction, coupled with the continued slowdown in the
nation's economy, already make this year look reasonably upbeat compared with
next year's projected declines. It's little wonder that a recent poll of
networking-industry watchers indicated that most outfits will either consolidate
or fail next year.
Dwindling
Industrywide spending declining sharply
*Projected
To make matters worse, now that phone companies rush en masse to 20% spending
cuts, many future projects -- the kind that were originally held out as sources
for future phone company revenue growth -- are getting lopped off.
Sprint's costly ION project, for example, once promised to marry the phone
network with the Internet and thereby lead the service providers to new
frontiers of voice and data business. Sprint killed the $5 billion plan last
week. And SBC effectively stalled its digital subscriber line efforts called
Project Pronto on Monday, putting future Net revenue in question.
Now, with few capital-intensive long-range revenue initiatives in the works, a
near-term recovery becomes a far dicier proposition.
By Scott Moritz
Senior Writer
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