Marconi On The Brink
Mark Lewis, 03.25.02, 12:45 PM ET
NEW YORK - Feeling sorry for yourself because you've stuck with Lucent Technologies or Nortel Networks throughout their long slide to the $5 level? Cheer up: You could be holding shares of Marconi, which now go for less than a quarter per share.
Telecom-equipment investors have been having a hard time of it the world over, but at least the biggest North American firms, such as Lucent (nyse: LU - news - people) and Nortel (nyse: NT - news - people), remain viable investments. That's more than can be said with confidence for Britain's Marconi (nasdaq: MONI - news - people), which is currently sinking under a debt load it may not be able to service.
The telecom meltdown is being felt more severely in Europe, because service providers there went heavily into debt to acquire third-generation (3G) wireless licenses. Then the telecom-stock bubble burst and the carriers cut their capital spending, leaving the equipment firms starved for orders. Marconi was particularly vulnerable because it had just completed its ambitious conversion from being a conglomerate known as GEC to being a pure-play telecom firm named for Guglielmo Marconi, the father of radio. Now the famous inventor's name is mud, at least in the eyes of investors.
"It is a waste of time to hold shares in Marconi. If you are an institution, you should have got out some time ago," one London dealer told Reuters. "This is a penny stock now."
Marconi is hardly the only European telecom to have reported bad news recently. Deutsche Telekom (nyse: DT - news - people) announced a week ago that it will cut its dividend and delay the initial public offering for its T-Mobile wireless unit until the markets become more welcoming to telecom issues. And on March 21, France Telecom (nyse: FTE - news - people) reported a $7.3 billion loss for 2001, due mostly to writedowns for acquisitions that have fallen in value. Further weighing on France Telecom are concerns that it may be forced to increase its stake in Mobilecom, a German wireless firm.
But service providers like Deutsche Telekom and France Telecom can count on steady revenue from telephone users to help them service their enormous debt. Marconi's situation is more perilous. The firm is negotiating with its bankers, who may push it toward some debt-for-equity swaps that would further dilute the stock price. Even at current levels, Marconi's stock amounts to very thin gruel. Investors may be forgiven if they fail to emulate Oliver Twist and ask for more.
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