RSTN & Networkers Fall on Qwest Cuts... JNPR SONS SCMR EXTR ONIS TELM RBAK AVCI
Fri Feb 15, 6:07 PM ET
By Jim Christie
SAN FRANCISCO (Reuters) - Network equipment makers' shares tumbled on Friday, the day after telecom carrier Qwest Communications International Inc. said it decided to cut capital spending by another $300 million this year.
Dresdner ditches Reduce rating on JNPR after shares drop - (ON24)
Shares of Qwest supplier Riverstone Networks Inc. were especially hard hit by the decision.
Riverstone shares closed at $7.70, down $1.75, or 18.5 percent, and among the Nasdaq's top five biggest percent losers of the day. Riverstone shares are down 62 percent from a recent high of $20.44 on Jan. 10.
Sycamore Networks Inc. stock closed down 4.5 percent, Extreme Networks Inc. shares lost 5 percent and No. 2 Internet router maker Juniper Networks Inc. lost 6 percent. The American Stock Exchange Networking Index <.NWX> fell 4.3 percent.
"The Qwest announcement is basically what's killing the network gear guys," said one analyst who asked not to be named.
Qwest, the No. 4 U.S. local telephone company, said on Thursday it will cut its 2002 capital spending to $3.7 billion from $4 billion as it tries to pare expenses and bolster its balance sheet.
Qwest, which lowered spending targets several times over the past three months, originally expected to spend as much as $7.5 billion this year, compared with $8.54 billion in 2001.
DEMAND REMAINS DOWN
"There's no light at the end of the tunnel," the analyst said. "There's just continuing bad news on capital spending."
Network gear makers, high-flyers during the technology boom of the late 1990s, suffered last year as telecom carriers and Internet service providers cut orders to respond to the slow economy, work through a glut of equipment and face their own financial troubles.
A number of gear makers have recently forecast quarterly revenues essentially flat with the previous three months, raising hopes that they had seen the worst of the downturn in demand for their products.
Qwest's spending cut, however, revived concerns that gear makers face a more prolonged slump.
Pacific Growth Equities analyst Erik Suppiger said market demand remained poor.
"In the service provider market, a host of financially ailing providers is depressing demand for carrier class products and the incumbent providers have been slow to build-out new IP infrastructure," Suppiger wrote in a research note on Friday.
A downgrade on Thursday by credit rating agency Standard & Poor's of Qwest's bond rating was another ominous sign for Riverstone, according to a Ferris, Baker Watts Inc. research note issued on Friday.
"Qwest will not be buying as much gear as it had planned, as its cost of capital just ratcheted upward," Ferris, Baker Watts analysts wrote.
RIVERSTONE'S OTHER CONCERNS
The Qwest announcement and the Standard & Poor's downgrade came at a bad time for Riverstone.
Credit Suisse First Boston on Tuesday had cut its price target for the company to $18 from $21, citing a continued slow period in spending by telecom carriers.
Also pressuring Riverstone shares was a Securities and Exchange Commission (news - web sites) probe into Enterasys Networks Inc. . Riverstone and Enterasys, also a network gear maker, were created last year from the break up of Cabletron Systems.
Riverstone shares have suffered "guilt by association," said the analyst who requested anonymity.
Commerce Capital Market analyst William Becklean said Riverstone shares also have been unfairly punished by the company's association with Qwest.
"It's way overdone," Becklean said. "In the third quarter of last year Riverstone shipments to Qwest were insignificant ... The deployment of Riverstone equipment to Qwest has been completed."
Riverstone spokesman Peter Ruzicka said the company does not rely on Qwest for a major portion of sales.
"Our revenue from Qwest was less than 10 percent (of revenues) in the most recent quarter," Ruzicka said. "We have over 100 customers in any given quarter so we're not dependent on any one customer for a significant portion of our revenue base."
** DJ: Qwest Communication's fourth cut to its 2002 capital spending plans since Septemeber may put more pressure on telecom equipment concerns. The company cut spending plans to $3.7 billion from $4 billion. Morgan Stanley analyst Alkesh Shah says Avici (AVCI) Ciena (CIEN), Juniper (JNPR), Nortel (NT), ONI Systems (ONIS), Redback (RBAK), Riverstone (RSTN), Sonus (SONS) and Tellium (TELM) have "medium to high exposure to Qwest's capital budget, in our view." |
