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Mixed Reports Put Telecom Sector on Edge

Stocks: WorldCom and Nextel disappoint investors, but JDS gives upbeat outlook.

October 27, 2000|From Times Staff and Wire Reports

Investors praying for an end to the stock destruction in the telecom sector got some mixed news on Thursday from some of the sector's giants.

A day after AT&T Corp. said it would break into three separate companies, archrival WorldCom Inc. reported troubling financial results and confirmed that it will embark on its own restructuring to address the deteriorating market for traditional long distance.

Wall Street reacted badly, pushing the stock (ticker: WCOM) down $3.50 to $21.75 on Nasdaq, the lowest closing price since 1998.

Meanwhile, wireless phone network operator Nextel Communications said its losses narrowed in the third quarter, but the stock (NXTL) plummeted after the firm warned that it may add fewer customers than expected in the current quarter--fueling new concerns about the telecom sector's growth.

On the plus side, fiber optics equipment maker JDS Uniphase (JDSU) reported strong quarterly sales, and raised its estimates for future growth, driving the stock up sharply in after-hours trading.

WorldCom suffered one of the biggest stock hits of the day, down 14%, after the No. 2 long-distance phone company said third-quarter sales growth slowed.

The concern about revenue overshadowed a 26% increase in earnings. Profit from operations rose to $1.36 billion, or 47 cents a share, after payment of preferred dividends, from $1.1 billion, or 37 cents, a year earlier.

But total sales rose 11.7%, to $10 billion. That was less than many analysts had forecast.

Wholesale and residential long-distance sales fell 3% from a year ago, to $2.88 billion.

In high-growth areas, WorldCom revenues fared better, with domestic data growing 23%, to $2 billion as customers expanded their networks.

Internet and related network revenues increased 51% to $640 million, driven by robust demand for higher bandwidth connections and advanced services. However, analysts said even these high-growth areas were weaker than expected in the third quarter.

What's more, the firm took a surprise charge of $405 million for bills that customers aren't paying.

Smaller phone firms that use WorldCom's network to sell services are having a hard time raising the cash they need, WorldCom said. It said 17 bankruptcies in the quarter contributed to the charge.

WorldCom Chief Executive Bernie Ebbers said he will detail a plan next Wednesday to focus on the company's healthier Internet and data service businesses.

Like AT&T, WorldCom is expected to create a "tracking" stock for long distance to distinguish that struggling unit from the rest of the company. "We have the right assets to have a fast-growing digital business and we plan to . . . focus on them," Ebbers said.

Wireless giant Nextel Communications said Thursday that its quarterly loss from operations narrowed to $236 million, or 31 cents a share after the payment of preferred dividends, from a loss of $361 million, or 55 cents, a year earlier.

Sales rose 59% to $1.42 billion.

But Nextel Chief Executive Tim Donahue said the firm expects to add more than 500,000 customers in the current quarter. That's about 50,000 below some analysts' estimates. The stock tumbled $7.31 to $28.81.

Because many businesses shut down during the Thanksgiving and Christmas holidays, Nextel's selling opportunities are cut by three weeks, the company said.

"[Wall] Street wanted something more concrete," said Peter Friedland, an analyst at W.R. Hambrecht & Co. Previous guidance called for Nextel to add 1.1 million new customers in the second half of 2000. The company added a record 681,400 customers worldwide in the third quarter.

Finally, JDS Uniphase said quarterly sales rose 171%, more than expected, and boosted forecasts for growth this fiscal year.

Quarterly sales jumped to $786 million from $290 million a year ago. Analysts had expected $756 million. Operating earnings were $177 million, or 18 cents a share, up from $65 million, or 8 cents a share, a year earlier.

JDS said it now expects to earn 80 cents a share, excluding costs for acquisitions, this fiscal year. Analysts had expected 70 cents.

JDS President Charles J. Abbe said that JDS, unlike Nortel Networks--whose disappointing sales report Tuesday has rocked the telecom sector this week--hasn't seen customers build up product inventories to ensure they don't run short. Neither have they stretched out delivery dates for orders, the firm said.

"We believe demand remains strong," Abbe said. "We can't find any meaningful evidence of an industry slowdown."

JDS shares added $3.44 to $74.44 in regular trading, then surged to $83 in after-hours trading.


Trouncing the Telecoms

Shares of telecom network operators and their equipment suppliers mostly managed to close up from their lows Thursday, but many still posted steep losses. A sampling of telecom-related issues, listed alphabetically:


Ticker 52-week Thurs. Thurs. close Stock symbol high low and change AT&T T $61.00 $21.63 21.81 $1.56 Ciena CIEN 101.00 84.00 03.00 5.38 Corning GLW 113.31 60.00 70.00 6.88 JDS Uniphase JDSU 153.38 62.00 74.44 +3.44 Nextel Comm. NXTL 82.94 27.63 28.81 7.31 Nortel Net. NT 89.00 42.56 45.38 0.50 Qualcomm QCOM 200.00 66.13 71.81 6.06 Sprint PCS PCS 66.94 30.75 33.75 4.00 Tellabs TLAB 77.25 38.63 41.69 +1.06 Wireless Facil. WFII 163.50 46.50 51.61 +9.14 WorldCom WCOM 61.31 21.63 21.75 3.50


Sources: Reuters, Times research

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