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Technology Stocks : Alcatel (ALA) and France -- Ignore unavailable to you. Want to Upgrade?

To: larry pollock who wrote (3518)	7/6/2001 1:52:54 PM
From: larry pollock	Read Replies (1) \| Respond to of 3891

Alcatel falls again in the shadow of Marconi, Friday July 6, 1:15 pm Eastern Time Forbes.com Marconi Caught In Telecom Meltdown By Mark Lewis That cloud hanging over European telecommunications stocks darkened considerably this week when Marconi announced a mammoth profit warning. The stunning news dashed investors' hopes that Europe would somehow escape the worst of the telecom carnage. ADVERTISEMENT It's not every day that a 115-year-old firm loses half its market cap in a single trading session, but that's what happened to Marconi yesterday when its American Depositary Receipts (ADRs) fell to $3.35 from $7.03, reflecting a similar plunge by the company's stock in London. The decline followed the London-based firm's July 4 announcement that revenue for the fiscal year ending in March 2002 will fall 15% from the previous year. Worse yet, Marconi's operating profit for the year will plummet a whopping 50%--and that's assuming the firm sees improvement in the second half of the year. For the first half, Marconi expects only to break even on an operating basis. To reduce costs, the firm announced another round of layoffs, cutting 4,000 positions in addition to the 4,000 eliminated earlier this year. That will leave Marconi with about 46,000 employees. Investors were unimpressed by this belt-tightening: The Marconi selloff continued this morning, with the ADRs off another 10% in early trading to dip below the $3 mark. Quite a comedown for a stock with a 52-week high of $29.13. Other European equipment-maker ADRs, such as Alcatel , dropped in the wake of Marconi's warning. So did the shares of North American equipment makers like Lucent Technologies , as the imploding telecom and networking sector dragged U.S. stock indexes into the red yesterday. This morning, Goldman Sachs cut its earnings estimates for Alcatel, Nokia and Ericsson , citing the Marconi warning. The European telecom equipment market "may see a substantial decline this year rather than general weakness," Goldman told its clients in a research note. As for Marconi, several Wall Street analysts fretted that there may be worse to come, considering that the firm carries a heavy debt load and its balance sheet seems overdue for adjustment to account for overvalued assets. Surveying Marconi's bleak prospects, Goldman cut the firm's rating from "market performer" to "underperformer." This is not quite what Marconi Chief Executive George Simpson had in mind in 1996 when he took over that stodgy but stable conglomerate known as GEC--for General Electric Co.--and began retooling it into a high-growth telecom equipment play. (This British General Electric is not to be confused with the U.S. firm of the same name.) In 1999, when Simpson changed GEC's name to Marconi, the firm's new focus on communications looked like a smart move. Then in 2000, Marconi's service-provider customers ran into trouble. They overbid for third-generation wireless licenses and are now burdened with crushing debt loads. And in Europe, as in the U.S., the new fiber-optics networks have proven less profitable than expected. So this year the European service providers, like their North American cousins, are retrenching on capital spending. Coincidentally, the former GEC's transformation into a telecom play finally was completed this week when Marconi announced the sale of its medical systems business to Philips Electronics for $1.1 billion. Only a few hours later, Marconi issued the warning about its fiscal 2002 results. Then Simpson found out just how fast a telecom stock can move--especially when it's moving in the wrong direction. Inevitably, Marconi's warning and subsequent stock plunge fueled speculation that the firm is now takeover bait. The problem is, who would buy it? Alcatel, which came close to acquiring Lucent earlier this year, has troubles of its own. In times such as these, it would take considerable courage to buy a big equipment maker, even at the current fire-sale prices. That goes for individual investors as well. Don't look for a quick snapback from Marconi. That dark cloud over the European telecom scene has settled in for a long stay, and it's a hard rain gonna fall. Related Links at Forbes.com Body Count Update: July 5, 2001 Fact and Comment Go to www.forbes.com to see all of our latest stories, or Subscribe to Forbes Magazine