What type of cost is transfter to the capital account? Will cutting these cost effect WCOM's ability to service the existing customer?
The worst yet the most likely possiblity is that, WCOM is spending a lot in order to retain the existing customers. As long as the business environment stays at the current condition, WCOM will still have to spend in order to retain customers. That is, it's an equivalent to a revenue reduction. The good news is that it does not change the cash flow picture. WCOM has been operation for at least two quarters at an annualized CapEx of $2 billion so there's really no de facto further CapEx cut and hopefully, with the excessful capacity, WCOM can service the exiting customers well. The cost cut measure announced yesterday is appearantly geared towards generating enough cash savings to pay the maturing debt, without having to resort to the bank loan, with will unlikely materialize (At least new management is doing all that's possible to avoid a bankruptcy).
I do not put too much hope on generating cash from the sell of wireless resale business. If it's a money loser, there's no value in it. The best hope is by exchanging the customer base, WCOM will not have to pay a cash panelty for terminating certain contract with the wireless providers for whom WCOM resales.
Notice also the mis-classified amount in the 1Q 2002 is largely inline with that of 2001. Indicating the situation is at least stablized.
So the bottom line seems to be:
We have a $32 (adjust) billion company with a decent operating margin of over 50% and gross margin of 15%. The enterprise value of the company can worth over $45 billion(3x OM and 10x GM). |
