Telecoms Post Dismal Results
Grim earnings reports Tuesday from three major telecommunications companies suggest that the industry, already battered by the bankruptcy filing of WorldCom Inc., will continue its slide as overcapacity, cutthroat competition and a difficult economy dash hopes for a recovery this year.
Lucent Technologies Inc., the nation’s largest telephone equipment maker, reported a loss of $7.84 billion for its fiscal third quarter and announced it would slash 7,000 more jobs by year’s end.
Meanwhile, SBC Communications Inc. sliced 3,000 jobs as second-quarter profit fell 11% to $1.85 billion. And AT&T; Corp. posted a record $12.7-billion loss, largely because of a $13.1-billion write-off in the value of its cable business and a 22% decline in consumer long-distance sales.
Shares of all three companies swooned on the New York Stock Exchange, with AT&T; and SBC hitting 52-week lows. AT&T; fell 72 cents, or 8%, to $8.80. SBC, the parent company of Pacific Bell, lost 66 cents, or 3%, to close at $23.30.
Lucent sank 45 cents, or 21%, to $1.65.
“You sit back and it’s like watching a car wreck,” said David Barden, a telecommunications analyst with Banc of America Securities. “It’s amazing and spooky. We’re learning that it’s impossible to make assumptions that last much longer than a quarter in this industry.”
One measure of how far things have deteriorated is the fortunes of Lucent. The once-admired company reported its ninth straight quarterly loss.
The Murray Hill, N.J., company lost $7.84 billion from continuing operations, or $2.30 a share, in its third quarter ended June 30, significantly wider than a year-earlier loss of $1.88 billion, or 55 cents a share. Including discontinued businesses and payouts of preferred dividends, Lucent’s loss was $7.91 billion, or $2.31 a share, compared with a $3.24-billion net loss, or 95 cents a share, a year earlier. The latest loss included a $5.8-billion noncash charge to write down the value of its tax write-offs.
Revenue sank to $2.95 billion, down 45% from $5.37 billion, as telephone carriers continued sharp cuts on capital spending.
By the end of the year, Lucent expects to have 45,000 employees. At its peak in July 2000, it had 155,000 workers.
“Lucent was one of the leaders on the way up, and now it’s leading the way down,” said Michael Cristinziano, an analyst with Gerard Klauer Mattison, which does not own shares in Lucent and has not provided banking services to the company. “That said, the industry is not dead. It’s just hung over, and it’s going to take some time to recover.”
AT&T;, meanwhile, presented mixed earnings. Although its long-distance business performed better than Wall Street expected, the New York company’s cable business did worse, signing up fewer new subscribers than anticipated.
The nation’s largest long-distance carrier posted a second-quarter loss of $12.7 billion, or $3.49 a share, primarily due to a $13.1-billion erosion in the value of its cable business, which AT&T; is selling to Comcast Corp. for $52 billion. The loss compares with a year-earlier loss of $191 million, or 10 cents a share. Excluding the noncash charges, AT&T;’s operating earnings were $3.36 billion, or 7 cents a share, down 13% from a year earlier.
Sales fell less steeply than analysts had anticipated, dropping 6.2% from a year earlier to $12.1 billion. Consumer long-distance revenue dropped 22% to $2.91 billion, while business revenue declined 3.8% to $6.74 billion.
“The numbers aren’t fantastic, but the operating results weren’t bad at all,” said Kevin Calabrese, a telecommunications analyst with Argus Research in New York. “It’s starting to come up from the bottom.”
AT&T; Wireless Services Inc., meanwhile, posted a profit of $19 million, or 1 cent a share. The third-largest wireless phone company earned $229 million, or 9 cents a share, a year earlier, including a $298-million one-time gain from the sale of investments. Sales jumped 16% to $3.91 billion.
SBC, the nation’s second-largest local phone company, also reported a drop in sales and profit. The San Antonio firm’s net income fell 11% to $1.85 billion, or 55 cents a share, from $2.07 billion, or 61 cents a share, last year. Revenue of $13.1 billion was down 4% from a year earlier.
One bright spot for SBC was a preliminary approval by California regulators Tuesday to let PacBell enter the long-distance phone market.
Meanwhile, SBC said it will slash 3,000 jobs, or about 2% of its work force. “My sense is that they will cut even more jobs,” said Alex Mou, an analyst with Hotovec Pomeranz & Co., which does not own SBC stock.
