AT&T; Profit Drops 6.4%; Pacific Telesis’ Off 13.2%
American Telephone & Telegraph Co. on Thursday reported lower second-quarter earnings, a 6.4% drop that it attributed to declining equipment sales and unexpectedly high start-up costs for its new credit card.
Pacific Telesis Group also reported that its income fell 13.2% in the second quarter.
For the record:
12:00 a.m. July 21, 1990 For the Record
Los Angeles Times Saturday July 21, 1990 Home Edition Business Part D Page 2 Column 3 Financial Desk 1 inches; 19 words Type of Material: Correction
Pacific Telesis--The regional telephone firm’s second-quarter earnings fell 11.7%, not 13.2% as was reported in Friday’s editions.
AT&T; warned of an expected drop in earnings in an unusual announcement three weeks ago, but it did not say how steep it would be.
AT&T; said it earned $657 million in the quarter ended June 30, down from $699 million a year ago. Revenue fell to $9.03 billion from $9.26 billion.
AT&T; said the disappointing results were mostly because of slower sales of corporate telephone systems, data communications gear and equipment sold to the federal government.
The company also blamed unexpectedly high costs for processing applications for its Universal card, which combines a MasterCard or Visa with telephone charge privileges.
The New York-based company blamed the 2% drop in equipment sales on a sluggish economy. It said the introduction of the Universal card in March produced twice the expected number of applications.
AT&T; also said its long-distance revenue was down 1.8% in the quarter due to less favorable access charge settlements with local phone companies and customer shifts to lower-cost AT&T; services. However, the volume of long-distance calls rose 7%. Industry analysts said this pointed to the increasingly competitive nature of the long-distance phone business.
AT&T; has been shifting its business customers to contracts that save them money to keep them from fleeing to competitors, “but it has come at a price in terms of what has happened to revenue growth,” said Charles Nichols, who follows AT&T; for Prudential-Bache Securities Inc.
Nichols said the second-quarter results also demonstrate how closely AT&T;’s fortunes are tied to the economy. As economic growth slumps, businesses spend less on phone systems and computers such as those sold by AT&T.; In addition, he said, the pace of growth in long-distance volume has been slowing as the economy weakens.
Despite the second-quarter, AT&T; said it stood by its forecast that earnings for all of 1990 would exceed its record 1989 earnings of $2.7 billion.
