Telecom firms brace for another sales hit

By Mathew Fordahl
Associated Press

SAN JOSE, Calif. — Telecommunications equipment companies, already battered by a sales meltdown, sustained another hit after WorldCom Inc. — a major buyer of networking gear — admitted major accounting fraud.

Cutbacks by WorldCom, which already plans a massive reduction in capital spending, will trickle through its vendors and will likely have an impact far beyond those companies, analysts say.

"The WorldCom accounting scandal is pretty much the last thing the doctor could have ordered right now for telecom equipment stocks," John Wilson, an analyst at RBC Capital Markets, said in a research note.

Networking gear suppliers have been sputtering since the telecom meltdown began with the collapse of the dot-coms in 2000.

The news has not improved since, as carriers cut back spending and as aggressive rollouts of networks led to overcapacity, falling prices and — in many cases — bankruptcy.

Juniper Networks Inc. is expected to be among the hardest hit. About 10 percent of the Sunnyvale, Calif.-based company's sales are from WorldCom's purchases of its high-end routers and other equipment.

More significantly, major long-distance carriers such as WorldCom have traditionally been more aggressive than regional phone companies in buying and implementing new technology.

"It's the psychological impact of losing a customer that would be more willing to adopt a next-generation platform," said Ryan Molloy, an analyst at SoundView Technology Group.

And not just telecom gear-makers are exposed. Computer services giant Electronic Data Systems Corp., for instance, provides information technology services under a 1999 deal that bring EDS $500 million to $600 million in annual revenue.