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To: Glenn D. Rudolph who wrote (118096)	2/18/2001 6:36:13 PM
From: Mark Fowler	Respond to of 164685

From Breifing: Telecom equipment Comment: We continue to rate the telecom equipment sector as a Market Performer. Pressuring the group is slowing capital spending by the telecom carriers. The carriers are cutting back spending as a result of plummeting prices for long-distance and difficulties raising capital. The latter is especially the case with the CLECs as investors are becoming less patient in funding the buildout of the long haul networks. These problems are now rippling through the equipment food chain as well. When Cisco talks of a challenging environment it cannot bode well for the other communication equipment makers either. Slower hiring at Cisco as well as layoffs and product cancellations at the likes of ADC Telecom are becoming more common. For example, even at Nortel, there have been reports of pockets of recent staff reductions with additional staff reductions and product cancellations for some unprofitable products. Telecom equipment companies are preparing for a slowdown which may be more dramatic than previously expected causing guidance to continue to come down. We expect growth in spending by telecom carriers to lag expectations this year, but should pick up during the second half thanks to additional interest rate cuts coupled with a likely reopening of the capital markets to the service providers. The slowdown in spending has affected more than just the general telecom equipment makers. On the wireless front, even Nokia recently warned that Q1 growth in mobile phone sales will fall short of expectations. As recently as late 2000, the company was very optimistic about the global handset market. However, in December, Nokia noticed a slowdown in sales particularly in the U.S. and in Europe operators are more cautious in adding subscribers. The slowdown is coming at an inopportune time as handset manufacturers are increasing R&D efforts in anticipation of the arrival of 3G telephony. Ericsson, in particular, is stepping up its R&D efforts and recently warned investors to expect margin pressure as a result. To complicate matters further, before 3G comes to Europe, operators will roll out Global Packet Radio Service, also called GPRS or 2.5G, an upgrade of sorts of the Wireless Application Protocol which allows phones to make rudimentary connections to the Internet. All of this is already a lot to juggle and is being made more difficult as a result of the global slowdown. The capital spending slowdown is a serious and widespread problem. As such, we recommend staying on the sidelines until visibility improves. Stocks: ADC Telecom (ADCT), Advanced Fibre (AFCI), Alcatel (ALA), Alltel (AT), Aware (AWRE), Ciena (CIEN), Copper Mountain (CMTN), Corning (GLW), Ditech (DITC), Ericsson LM (ERICY), International Fibercom (IFCI), JDS Uniphase (JDSU), Lucent (LU), Marconi (MONI), Motorola (MOT), Netro (NTRO), Nokia (NOK), Nortel (NT), Paradyne (PDYN), Powerwave Tech (PWAV), Qualcomm (QCOM), Scientific-Atlanta (SFA), SDL Inc. (SDLI), Sycamore Networks (SCMR), Teligent (TGNT) and Tellabs (TLAB). Telephone Syst/Serv