Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : 360Networks - TSX - TSIX -- Ignore unavailable to you. Want to Upgrade?

To: LAURIE SELINE who wrote (431)	7/29/2001 12:56:21 AM
From: ms.smartest.person	Read Replies (1) \| Respond to of 449

Out Stay the Lights Friday, June 29, 2001 Patrick Brethour In a year of Meltdowns in the Tech Sector, few companies have been scorched as badly as 360networks Inc. The Vancouver-based company, which grew out of an Alberta construction firm owned by brothers David and Clifford Lede, briefly jolted the tech IPO market back to life in April, 2000, by raising $1.4 billion. And 360networks looked particularly credible compared with the other IPO wonders of 1999 and 2000. It had recruited Microsoft Corp. chief financial officer Greg Maffei to be its CEO. It also had grand plans to build global high-speed networks of fibre-optic lines and sell access to bandwidth-hungry telephone and internet companies. A year later, 360networks was fighting for its life. At the company's annual meeting in May, management announced drastically reduced revenue targets and gutted expansion plans. Rating agencies reduced the company's debt to junk bond status. In June, 360networks' shares, which debuted on the Toronto Stock Exchange at $14, and hit a peak of $35.90 last September, plunged to penny-stock levels. In mid-month, the company announced it was unable to make a $10.9 million (U.S.) interest payment and that it was considering a restructuring, which raised the spectre of the company filing for protection from creditors. How did things go so spectacularly wrong? Fibre-optic suppliers have been hit with a classic problem: Supply is far outstripping demand. It is a buyers' market, with all the ugly consequences for sellers: falling prices, evaporating profits, and plummeting stock values. The glut of bandwidth can't last forever, of course. Eventually, capacity-hungry applications such as video on demand will eat it up. The key question for 360networks' managers and shareholders is: Can they hang on until that happens? When will telecom firms, that are also being battered, stop drawing on earlier purchases of transmission capacity and start buying again? "That probably is the million-dollar question," said Maffei when the company released bleak first-quarter financial results in May, 2001. 360networks (which reports in U.S. dollars) lost $106 million on revenues of $80 million. To stem the losses, he announced deep cuts to 360networks' capital spending for this year, including an indefinite delay in a plan to lay cable under the Pacific Ocean to Asia. Even with the cutbacks, 360networks said it will need to close a cash "funding gap" of $300 million (U.S.) to tide it through to the middle of 2002, when it hopes business will turn cash-flow positive. In early June, Moody's Investors Service plunged the company into a crisis by cutting the rating for its senior unsecured credit to Caa3, the agency's third-lowest rank. Moody's said it was concerned that 360networks won't be able to finance new construction. Even if 360networks' coffers were full, demand for its product has dried up. Demand for internet bandwidth used to double every three to four months. But an increasingly influential minority of analysts believes that bandwidth will now double every 12 months. Even at that slower pace, International Data Corp. (IDC), a tech-industry analysis firm, forecasts a 20-fold rise in global demand for bandwidth by 2004. However, that would still mean that the current glut would persist for a long time. The industry was counting on applications such as on-line music downloads to drive demand this year. But the legal woes of Napster have sent traffic into a tailspin. Nevertheless, Lawrence Surtees, senior telecommunications analyst with IDC Canada, still believes that the industry is going through a cyclical trough, rather than hitting "a brick wall." Infrastructure suppliers such as Nortel Networks Corp. could compound the problem by boosting the transmission capabilities of existing fibre-optic cable. That is what happened in the late 1990s. Companies developed techniques to send more signals through a single strand of fibre, and that helped boost the capacity of existing networks a thousandfold, says Iain Grant, managing director of The Yankee Group in Canada. Grant says users will continue to find ways to get more out of existing networks. An example: Rather than transmitting an entire digital movie across continents, suppliers will duplicate it for many distribution points in major metropolitan areas. Even without the unbuilt capacity, there are masses of "unlit" fibre-optic cable-transmission lines already built, but not yet carrying traffic. This is the miasma of uncertainty that swirls around the sector. Few analysts anticipate a rebound until at least the middle of next year. The problem is, any upswing is likely to come too late for 360networks. Barring an eleventh-hour rescue, it looks as though one of the promising tech stories of 2000 is turning into one of the most sobering object lessons of 2001. top1000.globeinvestor.com