Orderly transitions in the scandal-plagued telecom industry are still possible, it turns out. After several rocky weeks at WorldCom (WCOM) and Qwest (Q), both of which pushed out their embattled CEOs, a new leader has been calmly appointed at AT&T (T).
The telecommunications giant announced July 17 that President David Dorman will become the next chairman and chief executive. He will succeed Chairman and CEO C. Michael Armstrong, 64, who is scheduled to step down when AT&T completes the sale of its cable-TV unit to Comcast (CMCSK) by yearend, pending regulatory approval. Armstrong will become chairman of AT&T Comcast.
Dorman, 48, is moving up to the job at a critical juncture. The industry is still suffering from excess network capacity put in place during the boom years of the late 1990s, and prices are weak. But the troubles at WorldCom and Qwest create an opportunity for AT&T to boost market share. Now it's up to Dorman, who previously ran Pacific Bell, Internet startup PointCast, and the now-defunct AT&T-British Telecom joint venture Concert, to seize the moment. The Sec is getting tougher. On July 17, it fined PricewaterhouseCoopers $5 million after finding the accounting firm had consulted with 14 audit clients on a contingency fee basis, a clear no-no. Moreover, the SEC found that PWC had improperly accounted for its own consulting fees at Pinnacle Holdings and Avon Products (AVP). The outcome of the probe provided a lift to the SEC's ongoing campaign to rein in accounting firms that provide consulting services to companies they audit.
In another show of resolve, the SEC was on the verge of a deal with Raytheon (RTN) to settle charges that the defense contractor disclosed information to Wall Street analysts but kept regular investors out of the loop. It would be the SEC's first enforcement action for a violation of Reg FD--the fair disclosure rule aimed at preventing large shareholders and analysts from getting special treatment over small investors. Growth is good? Not in today's climate. Bank regulators are scrutinizing the rapid growth of credit-card issuer Capital One Financial (COF) and calling on the firm to set aside at least $247 million against possible loan losses. Capital One also agreed to put more customers in the higher-risk "subprime" category. The news lopped 40% off Cap One's share price on July 17 and dragged down such rivals as Providian Financial (PVN) and MBNA (KRB), as fears spread that regulators would turn their gaze on the rest of the industry. Capital One CEO Richard D. Fairbank remained bullish, vowing profits will rise 30% for the year. With high-end chip sales stuck in neutral, Intel announced 4,000 more job cuts on July 16. They will come mostly through attrition and voluntary retirement packages. The Santa Clara (Calif.) company also trimmed 2002 capital-spending and R&D budgets amid expectations of flat profits. The belt-tightening will help, but Intel needs corporations to replace their old PCs--and soon. Forays into consumer electronics and Web hosting have also gone bust. If sales don't pick up, longtime investors may decide that their faith in Intel's prospects is misplaced. Relations between Tyco International (TYC) and Goldman Sachs (GS) have been rocky ever since Tyco announced a breakup plan earlier this year--a strategy that left investors cold and was eventually reversed. Goldman was Tyco's financial adviser at the time. Now, it seems, the bad blood is worse than ever. On July 16, Goldman analyst Jack Kelly declared Tyco "not rated," citing "heightened concerns" over an SEC probe into the company's bookkeeping. Tyco says the investigation doesn't involve any new issues besides the ones it disclosed in June. Goldman says its research is objective. One thing seems sure: These two companies will not be working together anytime soon. Those brown trucks will keep on rolling. Just 16 days before their contract was set to expire, United Parcel Service and the Teamsters announced on July 15 a "tentative" six-year labor pact. It hands part-timers a $6-an-hour raise, gives full-time workers a $5-an-hour bump, and creates 20,000 new union jobs. Given economic conditions, it's a surprisingly generous settlement. The union says the deal will cost UPS (UPS) $9 billion over the life of the contract. UPS clearly wanted a deal because the company was starting to lose business amid growing talk of a strike. -- Intel (INTC), IBM (IBM), and three telecoms may build wireless Wi-Fi hot spots around the U.S.
-- Apple (AAPL) plans to start selling a Windows version of its iPod MP3 player in August.
-- Ford Motor (F) moved into the black in the second quarter, mostly by rebuilding inventory.
-- A grand jury is probing United Way's Washington, D.C., chapter for its use of donations. Maytag (MYG) shares plunged 17% on July 16, to $32.32 apiece, after the appliance maker said a sales slowdown will force it to idle factories to work off excess inventories. The entire industry has been hit as consumers, spooked by market gyrations, park their wallets.