Advertisement

Level 3 Lowers Sales Estimates, Plans Layoffs

Share
TIMES STAFF WRITER

The carnage among telecommunications companies continued as Level 3 Communications Inc. on Monday announced deep layoffs and slashed its revenue projections for the next two years.

The debt-laden provider of high-speed communications services said it will cut 1,400 positions, or about 27% of its work force.

The move is expected to save the Broomfield, Colo., company $403 million by the end of 2003.

Advertisement

Level 3 also forecast lower sales of $1.53 billion this year, down 5% to 11% from already lowered estimates of $1.62 billion to $1.72 billion. It also lowered its sales projections about 25% for 2002 to about $2 billion.

Level 3, which has not posted a profit since its founding in 1998, reported a loss of nearly $1.5 billion on sales of $1.2 billion last year.

The announcement follows Nortel Networks Corp.’s news Friday that it would post a stunning $19.2-billion loss for the second quarter. Though the lion’s share is considered paper losses, the figure is still among the largest quarterly deficits ever. Among Nortel’s customers is Level 3, which uses Nortel’s equipment to build its data transmission network.

Both firms have been hit by a swift and steep drop in spending by established carriers that purchase Internet gear from Nortel and extra capacity from Level 3 and other service providers. In addition, many of the telecommunications start-ups at the core of Level 3’s business have gone out of business.

Those two factors bode ill for Level 3, which borrowed $8 billion to build its high-speed fiber-optic network.

“Companies in this sector have a very, very hard ride ahead,” said Paul Sagawa, a telecommunications equipment analyst with Sanford C. Bernstein & Co. “These companies have borrowed so much that some will never be able to pay back the money.”

Advertisement

Sagawa estimated a 20% drop in spending by telecommunications carriers this year, followed by a 10% decline in 2002. Other analysts have forecast decreased spending of 13% to 35% this year.

Level 3 executives said the company plans to cope with the sudden downturn by reducing expenses $2.3 billion between now and the end of 2003.

Aside from the layoffs, Level 3 is evaluating plans to sell non-core businesses and real estate, Level 3 President Kevin O’Hara said in a conference call Monday.

It also will aggressively court more well-heeled clients, including regional Baby Bells, many of which are continuing to develop capacity for providing long-distance phone service as well as high-speed Internet access for consumers.

But the universe of established customers is small, with 40 companies worldwide accounting for the bulk of the $15-billion market for dedicated, high-capacity data transmission. O’Hara said Level 3 already has contracts with 33 of the 40 large customers.

To shore up investor confidence, the company’s top four executives also agreed Monday to stop selling their shares beginning Friday.

Advertisement

The announcement did little to halt the slide in Level 3 stock, which hit a 52-week low of $5.95 on the Nasdaq before closing at $5.97, down $1.65, or 22%. Level 3 shares traded at more than $95 less than a year ago.

Advertisement