Saturday, October 3, 1998
Investors drop telecom stocks on slowdown fear
Street cited for Nortel slide
By SIMON AVERY
California Bureau The Financial Post
U.S. network and telecommunications equipment makers felt the sting of
Northern Telecom Ltd.'s earnings warning this week, as many investors
began to fear the industry may be heading for a slowdown and dumped
their holdings.
Although much of the market anxiety was created by Nortel's problems,
analysts said broader issues were also at play in the selloff.
"Nortel's comments about certain revenue opinions not getting met
followed some comments from [French telecom giant] Alcatel, which
followed some comments from other companies," said Steven Levy, an
analyst with Lehman Brothers Inc.
"You start putting the pieces of the puzzle together and you realize
there are not the growth prospects you thought there were."
For example, there are fears weakening demand for equipment in Asia
will spread to other areas, including Europe, Latin America and South
America.
Some speculate strong growth estimates based on the deregulation of the
U.S. and European markets may have been too optimistic.
In addition, the explosion of activity on the Internet and the move to
carry voice and data traffic on the same network have spurred hot
competition in the data-networking and telecom industries.
Shares of Cisco Systems Inc., Lucent Technologies Inc. and Ascend
Communications Inc. were also hard hit during the week.
Cisco shares (CSCO/Nasdaq) lost US$1 1/2 on Friday, closing at US$55
3/4, down 16% on the week. Ascend (ASND/Nasdaq), which lost more than
15% of its value during the week, closed at US$403 1/816, off US$1 1/4.
Lucent (LU/NYSE) closed down US$3 1/8 at US$63, for a weekly loss of
4.7%.
Some analysts said it was too early to know if the industry was
experiencing a capital growth slowdown.
"What we see is more of an international contagion here," said Truc Do,
an analyst with SoundView Financial Group in Stamford, Conn.
Europe was expected to be the growth area for the telecom industry
after deregulation, but investors are starting to rethink that
assumption.
Do is concerned about the effect Brazil's economic woes will have on
the North American industry. He predicts in six months Brazil could be a
more dramatic problem than Asia.
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