WorldCom Downgrade Offers More Evidence of Telecom Spending Slowdown

Wednesday brought more evidence of a coming slump in communications-equipment spending, in the form of a WorldCom (WCOM Quote) downgrade.

Lehman Brothers telecommunications-services analyst Blake Bath Wednesday cut the lagging stock to outperform from buy, citing a long-distance telephone revenue slowdown in the face of sharply rising industrywide capital spending. The resulting earnings slump will force WorldCom and its competitors to cut back on spending, the analyst suggested.

The news isn't bad only for the big telecoms, though it was plenty bad for WorldCom, which lost 6% Wednesday. A pullback by the biggest spenders on telecom equipment could easily ripple through the networking sector, where shares have rocketed in the last year as investors rallied around the accelerating global network buildout. With the entire sector, from Cisco (CSCO Quote) on down, seemingly priced for perfection, any slowdown could result in a big pullback in networking shares.

Unsustainable?

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