Telecom Roiled by Sales Gloom
Gloomy news from four major companies drove down telecommunications stocks Thursday, as leading players in the wireless, service and equipment sectors all reported or projected disappointing sales.
The pessimistic reports from cell phone giant Nokia, local phone and wireless powerhouse SBC Communications Inc., local and long-distance provider Qwest Communications International Inc. and equipment supplier Nortel Networks Corp. reflect the lingering malaise in an industry suffering from too much capital investment and weaker-than-expected demand for new services.
SBC, Qwest and Nortel announced plans to cut thousands of jobs to bolster earnings in the face of stagnating sales, and Nokia said it would eliminate 625 jobs at its Texas manufacturing plant. Qwest reportedly is in talks to unload its Yellow Pages service, a cash cow that could fetch up to $9 billion.
“Everybody is suffering from price erosion and excess capac- ity in some form. And that has a ripple effect,” said Roger Wery, a partner at PRTM, a telecommunications consulting firm in San Francisco.
Thursday’s news pushed the Amex North American Telecommunications Index of telecom stocks down 2%.
The industry may not make a meaningful recovery until 2004, said analyst Alex Mou of research firm Hotovec Pomeranz & Co. in San Francisco. The intertwined fortunes of telecom equipment and service companies have been a minefield for investors, he said, and “not all the bombs have been detonated yet.”
The first warning Thursday came from Finland, where Nokia, the world’s top maker of cell phones, cut its sales forecasts for the full year. The company predicted that sales would grow 4% to 9% over those of 2001, after previously forecasting 15% growth.
The changed forecast overshadowed better-than-expected first-quarter profit. Although revenue from mobile phones and network equipment fell 7% and 29%, respectively, the company still earned 0.19 euros a share, excluding acquisition-related and other special charges.
On the New York Stock Exchange, Nokia’s shares fell 12% to close at $18.10.
SBC, the second-largest local phone company in the U.S., reported a loss of $81 million, or 2 cents a share--its first quarterly loss in almost five years. The deficit stemmed largely from the declining value of Sterling Commerce, an e-commerce software and services company it acquired. Excluding those costs, the company said it would have shown a profit of 51 cents a share, in line with analysts’ expectations.
Nevertheless, the company announced that it would cut 8,000 jobs, or 4% of its work force, this year, as well as trim capital spending an undisclosed amount.
The company’s previous forecast called for a 1% to 3% increase in sales for the year. On Thursday, however, the firm said it would be “challenging” to meet that target.
Shares of the San Antonio-based company fell 61 cents, or 1.8%, to $33.89 on the NYSE.
Qwest, which has cut its forecasts several times in the last six months, warned investors again Thursday that its results for 2002 would miss expectations. The company, the dominant provider of local phone lines in 14 Western states but an underdog in the long-distance business, said it expected $18 billion to $18.4 billion in revenue, down from its previous forecast of $19.4 billion to $19.8 billion.
The Denver-based company also said it planned to eliminate 2,000 jobs by September, in addition to the 7,000 job cuts it announced four months ago. It blamed the lower forecasts on “continuing weakness in both the telecommunications sector and the regional economy.”
Shares in Qwest fell 33 cents, or 4%, to $7.57, also on the NYSE.
Toronto-based Nortel, the No. 2 manufacturer of telecommunication equipment in North America, reported that first-quarter sales were 49% lower than those of a year earlier. Revenue totaled $2.91 billion, down from $5.75 billion in the same quarter last year.
Nortel showed a narrower loss of $841 million, or 26 cents a share, largely because the company took a $1.6-billion charge in 2001 to reflect the diminished value of acquired assets.
Continuing its efforts to cut costs, the company announced that it would eliminate 3,000 more jobs, or 6.4% of its work force. Nortel’s shares closed at $4.04, down 12 cents, or 3%, in New York.
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Reuters and Bloomberg News were used in compiling this report.
