Telecom Woes Grow; Probe Widens

The telecom recovery that appeared to be underway vaporized Tuesday after dismal forecasts from equipment manufacturer Lucent Technologies Inc. and cell phone maker Nokia sent stocks throughout the sector sliding.

Concerns about accounting practices added to the skittishness, as No. 2 long-distance provider WorldCom Inc. said it had been asked to turn over financial documents to the Securities and Exchange Commission and congressional investigators requested information about bookkeeping at Global Crossing Ltd. The combined effect was to force investors and analysts to reconsider whether the long-suffering sector had indeed hit bottom, or whether it could drop even further.

With capital spending down 20% to 30% this year compared with 2001, equipment manufacturers can expect things to get worse before they get better, said John Gonsalves, a vice president with Adventis, a management consulting firm in Boston that focuses on the communications sector. Demand won’t pick up until the second half of the year, and a real recovery is unlikely until 2003, when a new round of corporate budgeting takes effect, he said.

“It’s going to be a long road to recovery,” said Bill Wyman, an analyst with the Precursor Group research firm in Washington. “Telecom right now is decoupling from the rest of the” economy.

The clearest sign of that came from Lucent, which said it wouldn’t return to profitability until fiscal 2003. Three weeks ago, the Murray Hill, N.J.-based firm predicted that it would move into the black in the current fiscal year, which ends in September. Lucent, which has shed tens of thousands of jobs, also cut its quarterly revenue forecast by one-third. As a result, the company’s shares dropped nearly 10% on Tuesday, losing 61 cents to close at $5.65 on the New York Stock Exchange.

WorldCom was an even bigger loser, dropping 12% after disclosing that the SEC requested documents concerning a loan to Chief Executive Bernard Ebbers and other financial practices. Ebbers told attendees at a Merrill Lynch investors conference that his company was in full compliance with SEC regulations. Still, WorldCom shares closed at $7.93, down $1.08, in Nasdaq trading.

Nortel Networks Corp. suffered a 6% loss after Moody’s Investors Service cut the credit ratings for the world’s largest telecom equipment maker to one notch above “junk” status and signaled it could cut the ratings further. Shares of the Brampton, Canada-based firm lost 36 cents to close at $5.65 on the NYSE.

In Europe, cell phone giant Nokia lowered its sales outlook for the first three months of the year and saw its shares drop 6%, despite forecasts that it could beat its profit target for the quarter. Nokia fell $1.41 to $22.09 on the NYSE.

Other casualties of the day included networking equipment makers Cisco Systems Inc., Ciena Corp. and Alcatel and cell phone makers Ericsson and Siemens.

Telecom firms could accelerate their own recovery by introducing products and services--such as streaming media, videoconferencing and distance learning--that would eat up much of the broadband capacity that has created the current glut, Gonsalves said. New products would entice businesses and consumers to boost spending, which in turn would drive sales of new infrastructure equipment.

“Service providers need to take the initiative to [create] applications that would drive bandwidth demand,” he said. “The onus is on them to come up with new stuff.”

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Times staff writer Jube Shiver Jr. contributed to this report, and Times wire services were used in compiling it.

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Where’s the Bottom?

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