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To: LLCF who wrote (16498)	9/7/2000 12:35:11 AM
From: Perspective	Respond to of 436258

Cracks in the Sycamore story: thestreet.com For Networkers, a Squeeze From Two Sides By Scott Moritz Staff Reporter 8/25/00 11:01 AM ET Williams Communications' (WCG:NYSE - news) cash crunch could signal more than a kink in the closely watched network-equipment spending cycle. It could also put several start-up optical-equipment companies in a sort of stock-market double jeopardy. Blinded? Cash Crunch Threatens to Slow Optical Network Buildout Williams isn't just a good customer of these optical networking companies, such as Nasdaq highfliers Sycamore (SCMR:Nasdaq - news), ONI (ONIS:Nasdaq - news) and Corvis (CORV:Nasdaq - news), and closely held Tenor, Amber and Zaffire. It also happens to be an owner of these firms, through deals in which Williams received pre-IPO stock in exchange for agreeing to test or buy equipment from these companies. When companies like Sycamore held their hugely successful IPOs, Williams' shareholdings fed into a positive cycle for the networkers: The start-up companies used the cash and the customer relationship to build their fledgling businesses; investors saw Williams' stake as a stamp of approval; shares jumped after the IPO amid the clamor to get in early on the great network buildout. But now that Williams has raised the prospect of a slowdown, the cycle could turn vicious. When cash-hungry operators need money to maintain their costly network buildouts, the shares of fledgling networkers become fair game. And when investors see these shares losing their momentum and the names of big customers on the selling-shareholder lists, they could decide to lighten up, too. That could lead to a bloodletting in a closely watched and precariously priced sector, observers say. Rite of Passage The better-than-cash enticement has become almost a rite of passage among networking start-ups, as TheStreet.com wrote earlier this year. Many of these agreements involve purchase guarantees, and individual executives have reaped fortunes, raising questions about whether network operators' product decisions have been skewed by their stakes in these companies. Williams has since banned individuals from profiting on these deals. But Williams is only one of a growing number of new-era communications services companies including BroadWing (BRW:NYSE - news), Enron (ENE:NYSE - news) and Qwest (Q:NYSE - news) that swap business for shares in many young networking firms. Obviously, as that trend spreads, so does the vulnerability of these networking start-ups to the downdrafts in network operators' shares that force them to look at every option when raising cash to build new infrastructure. In a favorable market, as the networking sector has enjoyed over the past year, investors have had the luxury of essentially being able to ignore most insider selling. One observer calls it the "hear no evil, see no evil, speak no evil" attitude among the sell-side analysts. 'So Thin' But as some investors are quick to point out, high-orbit valuations coupled with scarce customers and scant revenue make for a fragile equation. "The floats are all so thin, and the market has been pretty jittery. So look at the implications if it happened at an inopportune time," says a money manager with a large Wall Street firm who asked not to be identified. "You can imagine the headlines, a big partner and customer is dumping a big block of stock. It would be all over the chat rooms." "Herd psychology is not my specialty, but clearly the downside is breathtaking," says Rob McCormick, a principal at Integral Capital Partners, whose firm is one of Sycamore's largest shareholders and also holds ONI and Corvis. "If you have many things pointing in the same direction and you added the sale of a big block of stock to that, it could be the straw that broke the camel's back." Cashing Out As of last month, for example, Williams had completely cashed out its 200,000 shares of Sycamore. And Williams isn't exactly a disinterested party: As of its fiscal third quarter ended April 30, Williams represented 85% of Sycamore's sales. Williams says its liquidation of the Sycamore stake is consistent with its plan of being a short-term shareholder. "We are sensitive to working our position off over time to avoid affecting the market," Williams CEO Howard Janzen wrote in an email. The Sycamore sale involved 20 transactions over a seven-month period. So when the money flow clamps down, those cozy ties between buyers and suppliers that made for a wonderful ride up can provide a rather quick and vicious cycle down.

To: LLCF who wrote (16498)	9/7/2000 12:36:51 AM
From: Perspective	Respond to of 436258

WorldCom Downgrade Offers More Evidence of Telecom Spending Slowdown By Scott Moritz Staff Reporter 9/6/00 6:54 PM ET thestreet.com Wednesday brought more evidence of a coming slump in communications-equipment spending, in the form of a WorldCom (WCOM:Nasdaq - news) downgrade. Lehman Brothers telecommunications-services analyst Blake Bath Wednesday cut the lagging stock to outperform from buy, citing a long-distance telephone revenue slowdown in the face of sharply rising industrywide capital spending. The resulting earnings slump will force WorldCom and its competitors to cut back on spending, the analyst suggested. The news isn't bad only for the big telecoms, though it was plenty bad for WorldCom, which lost 6% Wednesday. A pullback by the biggest spenders on telecom equipment could easily ripple through the networking sector, where shares have rocketed in the last year as investors rallied around the accelerating global network buildout. With the entire sector, from Cisco (CSCO:Nasdaq - news) on down, seemingly priced for perfection, any slowdown could result in a big pullback in networking shares. Unsustainable? According to the Lehman report, the telecom-services industry next year will spend one dollar on capital equipment for every two dollars it generates in revenue. That marks a dramatic increase from 1996's 1:5 ratio, and this year's 1:3. While at first blush this rising tide of spending seems like good news for the equipment sector, Bath calls the 1:2 ratio unsustainable. With competitive pressures rising and long-distance revenue dropping, big-spending telecom companies such as WorldCom, AT&T (T:NYSE - news) and Sprint (FON:NYSE - news) inevitably will have to cut back on capital spending. Those decisions are likely to undercut the heretofore insatiable demand for telecom-networking gear, punishing the stocks that have benefited from that demand. WorldCom didn't have an immediate comment. Lehman advised the Jackson, Miss., company on its merger with MCI. Other Issues The spending pullback isn't the only problem for the networkers and the small network builders they often serve. Also complicating matters, in a number of ways, are the weak share prices of most telecom-service companies. And, just as the companies' interlocking relationships -- as supplier and customer, shareholder and financier -- mutually boosted their fortunes in sunny times, a shakeout could lead to a vicious wave of selling. WorldCom, for instance, isn't alone among giant telecom outfits in trading at recent lows. Sprint, SBC Communications (SBC:NYSE - news) and Verizon (VZ:NYSE - news) are all trading at 1998 levels, and AT&T has actually fallen to a price last seen in 1997. To address their weak share prices, these companies have either created or planned to create tracking stocks that give investors a chance to benefit from their fast-growing units. These units operate in sexier areas of telecommunications, such as wireless and data services. As the large, established phone companies cut themselves up, the smaller start-up telcos do the bleeding. Bath estimates the megacap telcos will create some $60 billion worth of tracking stocks or carveouts over the next six months. That's $60 billion that won't fund new companies because, as these spinoff shares flood the market, fewer dollars will shake down to the new network builders. The Ice Age As TheStreet.com examined two weeks ago, new network builders such as Williams Communications (WCG:NYSE - news) have already begun to feel the funding squeeze. Williams is $1 billion short of its capital-spending budget. With its shares trading below their IPO level and the company having recently tapped the junk bond market, Williams found it needed to take the extraordinary measure of selling part of its portfolio of networking investments to pay for new equipment and network expansion. The Williams situation serves as a warning for the market's current darling, the red-hot optical-networking sector. New network builders are the prime customers of the new network-equipment vendors, such as Sycamore (SCMR:Nasdaq - news), Ciena (CIEN:Nasdaq - news), Corvis (CORV:Nasdaq - news) and ONI (ONIS:Nasdaq - news). They are also, in Williams' and Broadwing's (BRW:NYSE - news) case, investors in these companies. To be sure, spending projections continue to be strong. But as more evidence of a cooling trend streams in, a wildly optimistic outlook and incredibly rich networking company valuations will be harder to sustain.

To: LLCF who wrote (16498)	9/7/2000 12:52:12 AM
From: Gary M. Reed	Read Replies (3) \| Respond to of 436258

DAK, "...did they really say that???" I couldn't even make that up if I tried...I was dumb-founded when he said it, they even flashed up a graphic with the words "selloff is research-driven..." The whole gist, as I interpreted it, was that, since the last two days' selloff was "driven by (negative) research calls by analysts," that it was no big deal and the upside momentum should be back in place soon...i.e., "buy the dips, foresake the fundamentals, don't worry, be happy!" Then again, when has a selloff EVER been interpreted as a possible negative by CNBS? Let's face it, if the mindless wonders, a.k.a. J6P, ever ran out of 4-letter brainless one-decision stocks, J6P would change the channel to watch Oprah or Jerry Springer. Wanna keep the ratings up? Keep the mo-mo stocks running. Selloff? No biggie, it's simply "research driven," and J6P knows what to do--buy the dips. Oil crossed $34 per bbl? Natural gas cruised through $5 per mcf? Not a big deal, just give the keys to the SUV to the wife when the tank's on 1/4 (have you EVER seen a woman NOT flip out when the gas gauge is less than 1/2 full? she'd be headed straight for the Shell station as soon as she pulled out of the driveway...ergo, gas money comes out of her purse, not your wallet, so who gives a rats' a$$ about rising oil prices, right?) and get the utility company to put you on that payment plan where they spread your utility bills equally over a 12-month period. And hey, if nothing else, just buy more 4-letter stocks...they always go up, you can just make up your budget shortfall with the profits you make on JDSU, right?!! That IS the way the game works, right? Or is this the "NEW new economy"? BTW, I have to laugh at these inflation stats from the government stat-cookers. August was a relatively normal month weather-wise here in New Orleans, yet everyone I speak to says their bill from Entergy last month was at all-time highs...speaking for myself, my August Entergy bill was 40% higher than the highest bill I've ever gotten--and I've had this place for 5 years now. It's becoming quite obvious that the Clinton administration will lie, cheat and steal their way into cooking inflation numbers into something palatable to the spin-meisters on Wall Street. Bubba probably figures "who cares if the economy craters once I'm outta office and the number-crunching comes to light...heck, Joe 6Pack is so dumb, I can just get the clones at CNN to spin it into a favorable light on me, and America's J6Ps will vote to amend the Constitution to allow a 3rd term for myself...I just need to artificially keep things propped up until I'm outta office." The notion may sound ludicrous on the surface, but all the circumstantial facts certainly point in that direction..."I told ya, I told ya I wuz the greatest prez-o-dent of all time...see how everything went to hell once I left office?" And you JUST F--CKING know that CNN and Dan Rather are so enamored with this New World Order crap that they'd pave the way to usher Bubba back onto Pennsylvania Avenue, vis-a-vis telling J6P that the downfall was already in the works before Bubba left office. I sometimes wonder if, longer term, the best thing that could ever happen to the Republican Party is if they lost the presidency and lost the majority in Congress this year...J6P would hang the economy's noose around Gore's head the same way they did with Carter and it would be a Republican cakewalk in 2004...bigger landslide than Reagan in '84.