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To: GST who wrote (143043)	6/15/2002 5:54:57 PM
From: H James Morris	Read Replies (2) \| Respond to of 164684

June 15, 2002 Wireless industry stocks took another pounding yesterday, after Sprint PCS admitted that its subscriber growth will be slower than expected and analysts downgraded a throng of companies. Shares of Sprint PCS tumbled more than 26 percent, falling $1.59 to close at $4.40. The plunge came after the No. 4 wireless carrier warned that net customer additions for the year would be as much as 15 percent below previous estimates. In the second quarter, Sprint said, its new customers would be just 300,000, far off its earlier estimates of 600,000 to 700,000. Sprint attributed its customer shortfall to increased price competition in the industry and to a new $150 deposit for customers with suspect credit. Also affecting its growth is that many businesses and high-end customers are waiting for the launch of its next-generation network, which will also offer high-speed wireless data. The bad news hit other wireless companies, too. Qualcomm's stock dropped more than 12 percent before recovering somewhat in late trading. Shares in the San Diego wireless technology giant lost $2.49 to close at $29.91. Qualcomm was hit particularly hard by the Sprint announcement, because the wireless carrier uses Qualcomm's patented wireless technology. Qualcomm makes money both from the sale of its cell-phone chips as well as from licensing fees for its technology. Qualcomm was not alone. The Wireless Telecommunications Index dropped as much as 8.8 percent before recovering to close down 2.76 percent at 46.15, below its previous all-time low of 46.68 set Thursday. Following Sprint's warnings, J.P. Morgan downgraded Sprint and other wireless companies, including Nextel, Sprint affiliate Alamosa Holdings, and Leap, a San Diego wireless carrier that offers unlimited local service in 40 U.S. markets. Shares in Leap fell 10 cents to close at $1.46. Leap's stock price has been decimated in recent months over concerns about its debt and ability to raise more money. Since the beginning of the year, Leap shares have fallen more than 93 percent. Leap's predicament is nothing new, as investors continue to shy away from the risky wireless industry. Of the 13 brokers who cover Leap, 10 rate it a hold, one rates it a buy and two rate it a strong buy. "At this point, investors want companies with good balance sheets, free cash flow and good visibility. These factors should keep wireless stocks out of favor," wrote analyst Luiz Carvalho, of Morgan Stanley. Merrill Lynch and Morgan Stanley issued bearish notes on the entire wireless industry. Merrill Lynch downgraded the sector to a reduce/sell, citing concern about the price war among wireless operators. Analysts at the firm also showed concern that wireless companies are unlikely to show positive cash flow until late 2003 or 2004. Echoing those concerns, Morgan Stanley pointed out that profitability will be difficult for wireless companies, as they spend to upgrade networks and increase capacity. Deutsche Securities cut its rating on Qualcomm from buy to market perform because of Sprint's lowered estimates. Other Wall Street firms – Salomon Smith Barney, Robertson Stephens, Legg Mason – lowered their ratings on Sprint. Despite the gloom surrounding the industry, some analysts see a bright future for the companies that can survive the current bloodletting. "I don't think we've seen telecom hit bottom yet," said Jeff Kagan, an independent telecommunications analyst. "On the other hand, if telecom is going to remain a key industry of the future, which it obviously is, then some of these companies will prove to be the biggest buying opportunity of a lifetime."