WorldCom (WCOM) is breaking out the ax on spending, spelling doom yet again for the network-equipment sector.
The nation's No. 2 long-distance company is cutting next year's new equipment budget to $5.5 billion from the "less than $7 billion" previously planned, company executives told a group of analysts at WorldCom's Clinton, Miss., headquarters. The move comes a month after WorldCom lowered its 2001 spending projection to $7 billion from $8.5 billion.
WorldCom is just the latest cash-conserving phone company to cancel network expansion projects and shelve equipment upgrades in order to ride out a period of weakening communications service sales.
WorldCom has tried to paint itself as a reorganized and newly focused service provider despite the
continued drag of falling long-distance revenues.
But increasingly, investors have questioned the company's ability to fund its operations and expansion plans as cash runs dry and debt payments mount. WorldCom had negative free-cash flow of $1.4 billion in the first quarter and $300 million in the second quarter. WorldCom has also increased its outstanding debt by more than $9 billion this year, to $27 billion.
The cuts are particularly painful for some of WorldCom's biggest suppliers, which include
WorldCom shares shed 53 cents, or 4.1%, to $12.44 Wednesday. Of course, the company isn't alone in its troubles. Several fiber-optic network concerns, including
, find their stocks in single digits. As some less-optimistic analysts put it, the current bust period in telecom has many of these companies "circling the drain."
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