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To: Victor Lazlo who wrote (125435)	5/23/2001 12:26:53 AM
From: H James Morris	Read Replies (2) \| Respond to of 164684

Full disclosure. I own too much wireless. BRZE,QCOM,WFII, and LEAP. >Telecom capital spending will drop this year and next year -- and maybe the year after that, too. That's the view of four analysts at Merrill Lynch who did a comprehensive study of spending plans of large and emerging service providers. And it's not hard to understand: Yesterday, Teligent filed for Chapter 11 bankruptcy. Last month, Winstar went belly up. Overall, spending on telecom equipment will decline 6.4 percent this year and 8.1 percent next year, and it could be flat or fall even further in 2003, say the Merrill Lynch researchers. That's not particularly good news in San Diego. Telecom is one of our major employers. However, there is one bit of good news. San Diego is very heavy in the wireless segment, and that's an exception to the rule. Merrill Lynch predicts that U.S. wireless spending will rise 20.9 percent this year -- but, unfortunately, only 1.8 percent next year. What happened to overall telecom spending? In a word, overexuberance. What else? Such spending zoomed by 32.9 percent in 1997, by 26.1 percent in 1999 and by 43.9 percent last year. Those were the days when investors believed that San Diego stocks such as Applied Micro Circuits, Leap Wireless, Wireless Facilities, Qualcomm and RF Industries could only go up in quantum leaps each year. Those were the days when the word Infotech was sacred, and it was widely believed that any business with any business plan could succeed on the Internet. Stocks of companies providing equipment and components for the wireless build-out, the next generation of long-haul communications, Internet infrastructure and the like soared heavenward. But all such bubbles burst. Stocks of the hot, emerging companies have crashed. Older companies are ailing: AT&T's balance sheet is shot, and the company is breaking into pieces again. In recent financial reports, accountants for smaller companies such as CoreComm, DSL.net and Intermedia expressed concern about the long-term viability of the firms, notes Merrill's Adam Quinton. Bonds of once-mighty Lucent are almost at junk bond status. Under pressure to improve sales, Lucent extended credit to customers. Bankrupt Winstar is suing Lucent, claiming that it reneged on financial commitments, thus leading to Winstar's collapse, Quinton says. "As Infotech budgets have come under pressure, many projects in the telecom and Internet infrastructure spaces have been delayed or canceled," he says. Spending by large, full-service telecoms such as Verizon and SBC will drop by 8.3 percent this year and 3.5 next year, say Merrill analysts. Other predictions: Next generation long-haul spending will drop 6.6 percent this year and 30.2 next year; Internet infrastructure spending will plummet 42.6 percent this year, then rise 17.1 percent next year; and spending by the emerging telecom service providers will plunge by 31.1 percent this year and 40.5 next year. Telecom equipment makers have a real problem. "Their customers are tangled in excess fiber-optic capacity and unable to get new financing," says Robert N. Gensler's of Baltimore's T. Rowe Price financial complex. Companies with once-sizzling stocks, such as Cisco and JDS Uniphase, depend on spending by the behemoths such as Verizon, as well as the new entrants which might not survive, Gensler says. "The white-hot growth of the late 1990s is unlikely to resume." Capital spending was growing at 35 percent a year in an industry in which revenue growth was only going up 12 percent. "That disparity between capital spending and revenue growth was unsustainable," Gensler says. It will take awhile before this indigestion goes away.