Networking investors, brace yourselves: Another round of spending cuts is on the way.
Though Wednesday's weak inflation report brought out bulls in practically every sector, investors in
know all the news wasn't good on this day.
have both tightened their equipment budgets over the last two days, collectively trimming $1.75 billion from the industry's already shrinking 2001 spending target.
Teetering international telco 360networks said Tuesday it would cut its 2001 equipment spending by $1.45 billion, or 38%, to $2.3 billion. The cut was particularly
deeply felt by optical networking gearmaker
, which subsequently slashed its fiscal fourth-quarter revenue target by 36%. 360 fell 18 cents to $1.34.
And Sprint, the nation's No. 3 long distance company, said Wednesday it would cut $300 million from its capital plans as it tries to balance costs with declining revenues. Wall Street wasn't surprised by the Sprint cut, and some observers say more spending reductions from Sprint are likely. Sprint fell 16 cents to $21.42.
To be sure, Sprint is still on track to spend $5.9 billion this year, a 44% increase over last year. But Sprint and
were the only two major buyers that expected to boost spending in 2001. The rest of the pack figured to spend less.
The cuts are only the most recent reductions to equipment spending plans this year. Vancouver-based 360networks had said in March that cash was in short supply and that the company was negotiating deferred payments with suppliers. Now, those deferrals are looking more like cancellations, which isn't good news for primary suppliers like Sycamore, Alcatel, Nortel and Cisco.
Notably, French telecom equipment maker Alcatel may not only be losing a customer in 360: It also faces a significant loss on a $700 million preferred convertible investment it made with 360networks in October. The 360networks side of the deal required the purchase of at least $100 million in optical equipment. An Alcatel spokesman said "some purchases were made toward that downpayment," but he didn't expect to see much more if 360networks cancels its undersea trans-Atlantic construction.
Amid a marketwide rally Wednesday, Alcatel shares were among the few losers, falling 27 cents to $32.31. Nortel edged up 3.6% to $13.89, and Cisco jumped 6.7% to close at $20.
Ah, customers: You can't live with them and you can't live without them when they owe you money.