The still-bleak fibre-optic future

Waiting for your Nortel Networks Corp. or JDS Uniphase Corp. shares to come back? Better be prepared to wait for several years at least.

One way to assess the prospects for fibre-optic component makers such as JDS, and equipment and systems makers such as Nortel, is to look at their customers: major telecommunications carriers.

The Optical Oracle, a New York City-based optical networking industry investment research service, publishes detailed reports on 11 major U.S. carriers. Chris Bulkey, the analyst who writes the reports, says the carriers fit into two categories. The first, including AT&T Corp. and Sprint Corp., are merely struggling, and are slashing capital spending. The second, including Global Crossing Ltd. and WorldCom Group Inc., are on life support, either headed for bankruptcy protection or already there.

Based on the carriers' own earnings guidance and other forecasts, Optical Oracle predicted last November that they would cut their total capital spending by 35% this year. Even if they cut it by a modest 10% a year after that, it will take until 2004 to get back down to 1998 levels.

"The sector did it to itself," says Bulkey. "All the excess spending that happened in '98, '99 and 2000 is coming back to bite them now. And it's going to take a long time to correct."

Bulkey says investors should avoid broad exposure to the fibre-optic sector, including JDS and Nortel. He says those two companies "have a lot of other problems on their own." And all component and equipment makers will continue to suffer as the carriers buy less. "It's like a domino effect," he concludes.

THE COMPANIES

AT&T Corp.

Broadwing Inc.

Global Crossing Inc.

Level 3 Communications Inc.

Qwest Communications Int'l Inc.

SBC Communications Inc.

Sprint Corp.

TyCom Ltd.

Verizon Communications

Williams Communications Group Inc.

WorldCom Group Inc.