Wall Street Puzzles Over Lucent, Nortel

Investors seeking comforting words from the big networking gearmakers this earnings season should settle in for a good long wait.

Sure, executives and analysts mostly say the worst of the tech recession is over, and some companies appear headed for strong quarters. Take Juniper (JNPR), the Cisco (CSCO) rival that on Friday closed its acquisition of Net security outfit Netscreen.

Still, no one seems firmly convinced that rollicking good times are ahead for the sector's rank-and-file. And Wall Street's prerecovery jitters haven't exactly been soothed by the events of recent weeks.

Investors surveying the sector will find deepening accounting investigations at Nortel (NT) and Sonus (SONS), along with a series of corruption-cleanup firings at Lucent (LU). Perhaps worst of all, they'll take note of grumblings about light orders among Cisco suppliers.

Smoldering bookkeeping issues aside, common sense would suggest that the industry is close to getting back on its feet. CFOs, to a large degree, have stopped cutting costs dramatically, and once-embattled CTOs are having dreams of eventual expansion.

But so far, there has been no meaningful growth in hiring or information technology spending. And just as businesses have been a little slow in placing orders for gear, phone companies have also been lagging in putting together their spending plans.

The big telcos are running "a little later than usual" with their shopping lists, says Sam Greenholtz, an analyst with Telecom Pragmatics. "We'll see a big surge in [bid requests] later this summer, but right now they are still gathering info about what they want to do with the network and testing products to see what fits."

The crosswinds come as investors reconsider their early year love affair with this sector. Lucent and Nortel in particular ran up in January and February on hopes that phone company spending would explode, but the shares have since stumbled as confirming evidence has been slow to arrive. On Friday, Lucent slipped a penny to $4.21 and Nortel dropped 20 cents to $5.43.