Qwest Halts Contract Work

Shares of communications equipment makers such as Ciena Corp. and Juniper Networks Inc. fell Friday as voice and data services company Qwest Communications International Inc. halted work by contractors in a move to reduce costs, analysts said.

Qwest, which has been cutting jobs and expenses to offset weak sales in the soft economy, said Friday that it halted work by 1,000 contractors assigned to special projects. Qwest said it will decide on a case-by-case basis which projects will continue or be canceled or delayed, a spokesman said.

The contractor cutbacks will not disrupt work by 30,600 Qwest employees on the company’s local and global networks, the company said.

Still, investors viewed the move as a sign the company might stop all capital spending in the fourth quarter, prompting fears of revenue shortfalls for equipment vendors, analysts said.

“This is a fairly draconian step that Qwest is taking. Essentially, the message here is that Qwest has told all of its contractors, and therefore anybody who is supplying those contractors: ‘Cease and desist all installations,”’ Lehman Bros. analyst Steve Levy said.

Investors dumped equipment stocks, pushing shares of Ciena, which gets about 20% of its revenue from Qwest, down $1.37, or 8%, to $15.09 on Nasdaq. Juniper, which relied on Qwest for 10% of its third-quarter revenue, lost $2.44, or 11%, to $19.48, also on Nasdaq.

Qwest posted an unexpected third-quarter loss Thursday on flat revenue and warned that fourth-quarter revenue would fall short of expectations.

The No. 4 U.S. long-distance telephone company said it has been hurt as the weak economy dampened sales to businesses and consumers and slowed sales of network capacity on its high-speed fiber-optic network. Qwest and its rivals have scaled back growth forecasts and cut spending plans.

Although Lucent Technologies, Nortel Networks and Cisco Systems do more business with Qwest, suppliers such as Juniper, Ciena, ONI Systems Corp., Tellium Inc. and Corvis Corp. rely on the company for a greater percentage of their total sales, analysts said.

Shares of ONI Systems fell 30cents, or 6%, to $4.95; Tellium lost 81 cents, or 12%, to $6.03, and Corvis closed unchanged at $2.30, all on Nasdaq.

Shares of Qwest fell 3 cents to $11.97 on the New York Stock Exchange.