The economy cast a pall over the vendor space last week with major equipment makers wallowing in job cuts, negative credit ratings, earnings forecast reviews and downgrades.
The companies involved are the struggling Lucent Technologies Inc., Nortel Networks Corp. and the almost immune Nokia Corp.
Lucent suffered a three-pronged attack. The first was Standard and Poor’s decision to lower its corporate rating to BB+ from BBB-, its senior unsecured debt to BB+ from BBB- and commercial paper to B from A-3. The ratings body said Lucent had been on credit watch since March after a $2 billion shortfall in proceeds from the IPO of its Agere Systems Inc., owned 57 percent by Lucent.
“The ratings change, which completes Standard & Poor’s current review of the company, reflects significant uncertainties about the company’s ability to continue to improve its operating profitability and cash flows to anticipated levels, in light of challenging communications sector market conditions,” said S&P in a statement.
In spite of the gloomy outlook, S&P seems impressed with the Murray Hill-based company’s attempts to cut down its operating costs by $2 billion annually as well as reduce working capital requirements by $2 billion by the end of this fiscal year.
Lucent said it was not taken aback by the downgrade to junk status, noting that it is on pace to restructure its way to profitability.
The next blow was its failure to sell two manufacturing plants to Flextronics International Ltd., a contract manufacturer in Singapore. The failure frustrates Lucent’s desire to raise between $600 million and $900 million. The company is looking for other contract manufacturers to buy the plants, which make switching and wireless equipment with staff strengths of 9,000.
Lucent’s third blow is unleashed from within on its staff, which is being cut by 5,000. This adds to the 10,000 jobs already announced earlier in the year.
Brampton, Canada-based Nortel issued a profit warning for the second quarter of this year and also announced layoffs of 10,000 more workers. The company said it expects a second-quarter loss of $19.2 billion after charges incurred in the restructuring and streamlining the company. But the loss would be $1.5 billion, or 48 cents a share, on revenue of $4.5 billion.
The company said it had penned an agreement for an unsecured credit facility of $2 billion and is adjusting its intangible assets by $12.3 billion. Nortel said it would also halt dividend payments. The company had announced job cuts of 20,000 in April.
S&P responded to the company with negative credit ratings. “On a preliminary basis, Standard and Poor’s believes resolution of the CreditWatch is likely to result in a corporate credit rating in the triple-B category and the short-term rating is likely to be `A-2,’ ” said S&P in a statement.
Nokia Corp. warned that the sour times had forced it to cut its forecast for the second quarter.
“The general economic slowdown in the U.S. has recently shown signs of extending other regions and to the wireless communications industry as a whole,” the Finnish company said in a statement.
The company said its year-on-year sales growth in the second quarter would drop below 10 percent rather than the earlier estimate of 20 percent. The phone maker says it expects only a modest growth in sales compared with 2000, which recorded $405 million phone sales.
“While market deterioration has had an inevitable impact on Nokia’s sales growth, our products have remained strong, our market position has strengthened and we’ve been able to find further efficiencies through tight control of our own high level of profitability,” said Jorma Ollila, Nokia chairman and chief executive officer, in a statement.
