This will be a hard year for Nortel (NT ), Cisco (CSCO ), Motorola (MOT ), and Lucent (LU ) as telecom companies slash capital spending. Already, Cisco Systems has lowered its revenue growth forecast from 60% to 40% this year. Nortel cut its growth forecast from 35% to 15% for 2001--and then admitted it wouldn't hit that.
Companies that make equipment for Cisco and others will suffer, too. On Mar. 19, Solectron (SLR ) said it had seen a "phenomenal downturn" in demand, and revenues for the current quarter will fall as much as 24% from the previous quarter. Solectron is cutting 10% of its workforce.
These companies are bracing for trouble. JDS Uniphase (JDSU ) is cutting 10% of its workforce after lowering revenue expectations for the current quarter to $925 million, down from $1.2 billion. On Mar. 19, Corning (GLW ) said its 2001 revenues would be $8.2 billion to $8.5 billion, instead of its $9 billion target.
Broadband Internet connections may not come as quickly or as cheaply as expected. Because of a capital crunch, Covad Communications (COVD ) expects to add 190,000 customers this year, vs. earlier estimates of 380,000. After the drop in competition, SBC Communications (SBC ) hiked the cost of its broadband services 25%, to $50 a month.
Web media companies and others dependent on broadband are being squeezed. Soundbreak.com, which offered online radio and video entertainment, cited the lack of broadband service for consumers as one reason it closed its doors in February.
Total debt for telecom companies has ballooned to $700 billion in the U.S. and Europe. Several companies have declared bankruptcy, and more defaults are coming. That could hurt the banks, insurance companies, and mutual funds that hold their debt. Already, Bank One says its loan losses would double, to $1.2 billion, partly because of telecom.
Data: Company reports, Lehman Brothers Inc., BusinessWeek