John,
This is getting uglier everyday...
=DJ WorldCom Capex Cuts More Of What's Expected In Telecom
30 Aug 08:15
By Johnathan Burns
Of DOW JONES NEWSWIRES
(This story was published late Wednesday)
NEW YORK (Dow Jones)--The frigid telecommunications equipment sector just got
a little colder.
On Wednesday, long-distance phone and data communications service provider
WorldCom Inc. (WCOM) announced it will spend as much as $1 billion less on
capital projects next year than previously expected - yet another bucket tossed
on the freezing telecommunications equipment sector.
"I think (the revision) is quite meaningful," said Jim Jungjohann,
telecommunications equipment analyst with CIBC World Markets Corp. "I don't see
the service-provider market improving anytime soon."
Indeed, neither do the equipment makers themselves. After market close,
optical fiber maker Corning Inc. (GLW) said it will further reduce its
worldwide work force by another 1,000 employees in response to slower spending
by carriers. The latest cuts brings to 8,000 the number of workers Corning
plans to trim. In addition, the company said it expects fiber shipments to
decline in the second half of the year and projects that overall market growth
for optical fiber will be much less than the 15% previously expected.
"I don't think Corning's announcement will be much of a surprise," Jungjohann
said. "There was the perception that their target (growth rates) were
unattainable."
The problem with Corning, Jungjohann said, is that the company was working
off a tremendous backlog that had accumulated when it couldn't fill orders from
last year.
Primarily, demand remains robust in Asia while it sags in Europe and North
America. However, sales of the company's high-performance and high-margin LEAF
fiber aren't as strong in Asia, which will continue to harm Corning's margins.
"I think the true visibility of fiber is coming out," Jungjohann said.
WorldCom did not sayspecifically where it intends to tamp down spending next
year. The company plans to spend a total of $6 billion on capital projects in
2002 - $5.5 billion in its data and web-hosting WorldCom Group (WCOM) and about
$500 million in its consumer long-distance MCI Group (MCIT).
That's significantly lower than estimates of $7 billion, made as recently as
July.
WorldCom officials said Wednesday the company has "virtually completed" its
buildout of data and hosting centers, most of its international buildout and
its Terabyte network speed upgrade.
WorldCom announced that it was reducing its 2002 capital spending plans in a
federal filing that coincided with an investor meeting at the company's
Clinton, Miss., headquarters.
The news may have caught investors off guard due to a lack of publicity about
the closed-door meeting.
The way WorldCom detailed the sequence of events, the company met disclosure
requirements under the Securities and Exchange Commission's 10-month-old fair
disclosure rule.
Under Regulation FD, passed to level the information playing field among all
investors, companies must broadly disseminate material information. So, knowing
that the company was planning to talk about news clearly of a material nature,
the company opted for one method considered absolutely foolproof by the
Securities and Exchange Commission - a simultaneous 8K filing, a spokesman
said.
The spokesman characterized the early-afternoon meeting as a routine
gathering among a small group of investors and Chief Executive Bernie Ebbers
and Chief Financial Officer Scott Sullivan.
"If and when we reveal something material we ensure we comply with Regulation
FD," the spokesman said.
Unfortunately, though they are available on both free and paid Web sites, and
commercial news services, such regulatory filings aren't always front and
center on investors' radar screens.
Even after the filing began circulating in themarket, some traders were
angry because they thought the meeting was held hours earlier, after noticing
pressure on the stock earlier in the day.
In fact, WorldCom's volume spiked as the stock sold off sharply early in the
trading session. But it doesn't appear to be related to the discussion with
investors, as the spike occurred before the start of the afternoon meeting. One
possible explanation offered by the company was an unfortunately labeled link
on a Briefing.com Web page, with yesterday's date that read "WorldCom Warns." A
click on the search link directed readers to a July 5th press release, when the
company warned earnings wouldn't meet expectations.
Greg Jones, director of research at Briefing.com, which provides live market
analysis and commentary on the Web, thought it unlikely that the link could
have fueled a selloff, but WorldCom said the company fielded calls from a
handful of investors confused over the posting.
Meanwhile, the cut to capital spending by WorldCom is likely a sign that
pricing for telecommunications equipment may be softening, Jungjohann said.
He also believes there are too many large telecommunications service
providers remaining, and that consolidation there will have to come before any
sustained improvement is seen in equipment spending.
That won't be welcome news for equipment makers like Corning, JDS Uniphase
Corp. (JDSU), Lucent Technologies Inc. (LU), Nortel Networks Corp. (NT), Ciena
Corp. (CIEN) and ONI Systems Inc. (ONIS), among others. Most of those companies
- located at various places along the telecommunications food chain - have
lowered growth projections for the second half of the year and 2002.
Corning Chief Executive John Loose has said he does not expect spending to
grow until 2003. Lucent officials said last week the company expects sector
spending will be down in 2002.
Jungjohann believes it will be down as much as 10%, but others are expecting
it todrop even more.
-By Johnathan Burns, Dow Jones Newswires; 201-938-2020;
johnathan.burns@dowjones.com
-By Phyllis Plitch, Dow Jones Newswires; 201-938-2357;
phyllis.plitch@dowjones.com
(END) DOW JONES NEWS 08-30-01
08:15 AM
Copyright 2001 Dow Jones & Company, Inc. |
