Nortel, Corning Plunge on Outlook
A barrage of bad news from Nortel Networks and fiber-optics maker Corning ignited a steep sell-off Friday on Wall Street that hammered stock prices throughout the telecommunications and equipment sectors.
After months of standing by earlier forecasts, Canadian telecommunications equipment maker Nortel stunned investors Thursday by slashing its 2001 profit forecast by two-thirds and unveiling a plan to cut 10,000 jobs this year.
“We now expect the U.S. market slowdown to continue well into the fourth quarter of 2001,” Nortel’s Chief Executive John Roth told Reuters on Friday.
In response, investors sent Nortel shares plummeting Friday to a 52-week low of $20, down $9.75, on the New York Stock Exchange.
Analysts say the moves by Nortel cement the notion that network equipment suppliers will continue to struggle as the U.S. economy slows and customers--from large phone companies to corporations--reduce spending on new information technology systems and networks.
“Some of my competitors I understand can’t raise money; Nortel’s not in that situation. We’re going to ride this out. Other people may not be so lucky,” Roth said.
Nortel’s primary rival, Lucent Technologies, on Friday faced a cash crunch so severe that it was in tense talks with its bankers to secure additional credit.
One report late Friday said Lucent failed to get commitments for all of the $4.5 billion in new credit lines it sought from banks by a deadline imposed by Chief Executive Henry Schacht, according to a banker familiar with the matter.
However, Lucent spokeswoman Kathy Fitzgerald said company officials are “very confident that we’re going to complete this on schedule next week.” Fitzgerald declined to comment on how much the company, which also wants to amend a $2-billion five-year credit line, raised from banks Friday.
“We are asking for your help,” Schacht told bankers. “We don’t want to do this, but we are out of time.”
The banks’ reticence to lend comes after Lucent, rated “A” by Standard & Poor’s just a few months ago, had its credit ratings cut to near junk status by both the major credit-rating companies because of recent disappointing results. The equipment firm said last month that it would cut 10,000 jobs within six weeks as part of a seven-point plan to return to profitability.
The woes of Nortel and Lucent have already spread to other suppliers, including Corning and JDS Uniphase. Corning, the No. 1 maker of optical fiber and cable for telecommunications networks, on Friday cut its sales forecast for this year and hinted that it also may fire more workers to reduce costs.
Corning trimmed its outlook after Nortel, one of its largest customers, reduced its profit forecast.
Investors promptly sent Corning shares down $9.01, or 21%, to close at $33 on the NYSE.
“I think the reality now is that they’re learning an ‘old-economy’ lesson, and that is that the revenues go away a heck of a lot faster than the expenses do,” said Ken McGee, group vice president and research fellow at Gartner Group. “I really think the vendors were blinded by the gold rush and believing that consumers would change their buying behavior patterns” to the Internet.
JDS Uniphase, the largest maker of fiber-optic components, also fell further Friday after Nortel’s announcement. Wall Street analysts downgraded JDS after company officials cut their forecasts this week.
On Friday, JDS Uniphase’s shares fell $9.31 to a yearly low of $35.81 on Nasdaq.
Also Friday, broadband services provider Covad Communications Group Inc. warned that it will take a larger-than-expected fourth-quarter restructuring charge, delay releasing its financial results for the period and possibly restate those for earlier quarters.
Analysts said the Santa Clara, Calif., company is facing the same difficulties that have hit other DSL providers and led competitor NorthPoint Communications Group Inc. to file for bankruptcy protection last month.
Nasdaq halted Covad shares, seeking additional information, before the market opened Friday. The stock closed at $2.88 on Thursday, near its all-time low of $1.25. The 52-week high was $66.63.
Covad, a leading provider of high-speed Internet access over digital subscriber lines, had planned to report earnings Feb. 27 but said it needed more time to assess how restructuring charges and more stringent accounting rules will affect its fourth-quarter results.
The company said it expects to take a substantially larger fourth-quarter charge than the $20 million it originally projected because of layoffs and the closure of some facilities.
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Times wire services were used in compiling this report.
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Network Nightmare
Shares of computer and telecom networking companies plunged Friday amid deepening woes for many of the industry’s key players, including Nortel Networks and Corning.
Nortel Networks and Corning shares, monthly closes and latest on the NYSE
Corning: $33.00, down $9.01
Nortel Networks: $20.00, down $9.75
Source: Bloomberg News
