Loopy Lucent Nags Nortel

Wireless-network expansion is taking a painful pause.

This was to be a banner year for phone-equipment makers, as mobile-phone giants like Verizon Wireless, Cingular and Sprint (S Quote) geared up their third-generation, or 3G, networks.

But while 2006 could still be strong, midyear progress reports suggest a slowdown is afoot.

Lucent's (LU Quote) announcement Monday of a sales shortfall highlighted investor worries. Lucent laid the blame for its third-quarter weakness on a slump in U.S. wireless-gear demand.

The news provided further evidence that telcos are looking to trim spending rather than exceed their budgets. Stocks across the wireless infrastructure sector were hit by Lucent's latest warning. Top wireless gearmaker Ericsson (ERICY Quote) fell 3%, Nortel (NT Quote) dropped 1%, and Powerwave (PWAV Quote) was down 2% in midday trading Tuseday.

Lucent shares were down 4%, a fall likely moderated after the company confirmed it is still on track with its buyout by Alcatel.

For the fiscal third quarter, Lucent says earnings will be 2 cents a share, about half of what Wall Street was expecting. And revenue for the quarter ended last month was about $2.04 billion, well shy of the $2.34 billion consensus target.

After sorting through the results, analysts pointed to Cingular -- a venture of AT&T (T Quote) and BellSouth (BLS Quote) -- and Verizon Wireless, co-owned by Verizon (VZ Quote) and Vodafone (VOD Quote), as the likely sources of the problem.

Cingular seems to be dragging its feet on things like budget approvals to finance upgrade plans, writes Jefferies analyst George Notter in a research note Tuesday. Cingular has about 18 major cities and surrounding suburbs wired with its new universal mobile-telecommunications systems, or UMTS, network. The company is expected to have close to 100 cities covered by the end of the year.

Industry observers and analysts say they suspect Cingular is trying to limit spending and also stay on course with its project goals. One reason, say analysts, is that fast mobile Net access service hasn't been in big demand yet, due largely to high prices.