Contract Manufacturers and Chip Stocks Feel Nortel's Pain
Coming shortly after optical networker
Ciena's
(CIEN)
pedal-to-the metal earnings report,
Nortel's
(NT)
unexpected earnings warning came like a downed bridge in the middle of the road.
Canadian networking giant Nortel cut revenue and earnings for the rest of the year, saying it was seeing a slowdown in business that would last until the end of 2001. Nortel's sheer size and its one-time darling status mean its bad news is having a major impact throughout the market. And when corporate bad news arrives, analysts follow. Nortel and other telecommunications companies this morning were hit with a fistful of
downgrades and cuts in earnings estimates.
Nortel was down $9.75 to $20, losing just about one third of its market value. Lucent, battered recently on its own continuing bad news, was trading down 80 cents, or 5.9% to $12.82. Even Ciena, which had climbed 28.6% after its bullish outlook earlier this week, was trading down $5.13, or 5.8%, to $83.88 in recent trading.
But what are investors to take away from the conflicting news out of Nortel and Ciena? Some analysts reconciled the difference in reports by suggesting a product shift from the older networking products offered by firms such as Nortel and Lucent to the next-generation fiber optic systems from Ciena and others.
Networking giant Cisco was recently 8.7% lower to $28.13. It hit a 52-week low earlier in the day.
Nortel's news isn't just spooking investors concerned about the tech slowdown. Its business has a direct link to many other big names. Cable and component maker
Corning
(GLW)
, for example, changed its top-line estimates this morning on its photonics business. The unit sells more than 15% of its products to Nortel. Corning revised down growth estimates for the year from 75% to 50%. After gaining 8% yesterday, Corning was down $9.02, or 21.5%, to $32.99.
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Leading optical component supplier
JDS Uniphase
(JDSU)
counts on Nortel for at least 15% of its sales. JDSU was down $8.31, or 18.4%, to $36.81. And components supplier
Oplink Communications
(OPLK)
also was falling, down $1.84, or 13.9%, to $11.38 in recent trading.
So it's little surprise that some of the semiconductor makers whose chips are used in communication networks were also feeling Nortel's pain.
Advanced Micro Circuits
(AMCC)
, which relies on Nortel for more than 15% of sales, was down $7.31, or 14.2%, to $44.38. Other communication chips with sales to Nortel were suffering, including
Vitesse Semiconductor
(VTSS)
and
PMC-Sierra
(PMCS)
.
Electronic manufacturing companies, which assemble parts into products for companies on a contract basis, also were dragging. Hardest hit:
C-Mac Industries
(EMS)
, a Canadian contract manufacturer that saw more than half its revenue in the fourth quarter come from Nortel. It was down $14.43, 31.9%, to $30.85.
Other contract manufacturers with significant exposure to Nortel include industry leader
Solectron
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, which is trading down $2.63, or 7.7%, to 31.57;
SCI Systems
(SCI)
, down $2.31, or 8.5%, to $24.80 and
Sanmina
(SANM)
, off $6, or 14.7%, to $34.94.
