Updated from 12:50 p.m. ESTShares of telecom giant Verizon ( VZ) fell Tuesday, as investors digested the reality of the firm's fourth-quarter results. Verizon's shares slipped $1.03, or 3.3%, to $29.96, reversing a broader stock market rally that saw the Dow and the Nasdaq increase 0.72% and 1.04%, respectively. Even after posting a 15% hike in its fourth-quarter profit, and reporting healthy revenue, the firm's results suggest that there are plenty of challenges in store for Verizon. Whereas Verizon's wireless business grew 12.3% year over year to $12.8 billion, its wireline operation was a different story. The company's total wireline revenues, for example, slipped 2.7% to $11.9 billion, prompting at least one analyst to voice his concern. "With all the focus on wireless, perhaps it's time for the debate to shift back to the wireline business," wrote Craig Moffet, a senior analyst at Bernstein Research, in a note released Tuesday. "Overall wireline revenues declined a surprisingly sharp percentage versus a year ago." The analyst added that Verizon's wireline margins also dropped by 300 basis points to just 24.5%, a much worse showing than he had expected. Verizon's enterprise wireline revenues also took a hit during the fourth quarter, casting something of a cloud over the firm's 2009 prospects. "Enterprise results, inarguably the most cyclically exposed part of the portfolio, were perhaps the biggest story of the quarter," wrote Moffet. "Verizon's year-over-year decline of 2.2% versus our forecast of 1% suggests that things could get much worse in 2009."
Verizon acknowledged the economic uncertainty during a conference call Tuesday and did not offer guidance for the first quarter of 2009. "We don't have any specific forecast," explained Ivan Seidenberg, the Verizon CEO. "Visibility into 2009 is less clear than we have seen in previous years." Verizon's fourth quarter nonetheless had high points, including the addition of 303,000 FiOS TV customers and 282,000 new FiOS Internet customers. The telecom giant's revenue from strategic business services such as professional consulting also rose 8.4% year over year. Verizon's strong wireless business was boosted by the launch of 38 different mobile devices in 2008, a third of which were Personal Digital Assistants (PDAs) and smartphones. The firm is planning to launch about two dozen wireless devices in the first half of 2009, according to executives on the conference call. Verizon's CFO Doreen Toben touched on the firm's recent acquisition of wireless specialist Alltel. "This acquisition has many compelling strategic benefits," she said. "It expands our network to cover almost all the U.S. population - it makes us the largest U.S. carrier in terms of total customers, which will be more than 80 million." Verizon, which competes with AT&T ( T), Sprint Nextel ( S) and Qwest Communications ( Q), is seen as one of the telecom sector's more attractive stocks, thanks largely to recent shifts in the telecom market. Other telecom stocks, however, mirrored Verizon in early trading Tuesday. Sprint, for example, which recently announced plans to cut 14% of its workforce, fell 3 cents, or 1%, to $2.46, while AT&T fell 79 cents, or 2.94%, to $26.04. Shares of Qwest also headed south, falling 12 cents, or 3.12%, to $3.72.
Verizon, which already operates its wireline business as a joint venture with Vodafone ( VOD) is also about to announce a partnership with consulting giant Accenture ( ACM), according to Seidenberg. The two firms will undertake joint sales and marketing, he said, adding that the partnership will initially be in the U.S. and expanded globally "as opportunities arise."