Four years after the collapse of the Internet bubble, phone companies and equipment makers are finally producing steady profits. But their turnaround has failed to impress investors who have lingering doubts about the industry's outlook.
The reasons for hesitancy are many, but they boil down to this: growth in the next-generation services and wireless products now being offered by phone companies only partly make up for the declines in their older, traditional phone businesses.
The market response to earnings on Thursday from SBC Communications is typical of this tug-of-war. SBC, the large local phone provider, earned US$2.1 billion in the third quarter, a 72.2 percent jump from the same period last year.
Sales grew 1.4 percent, the second consecutive year-over-year increase after three years of declines because of demand for its wireless and high-speed Internet products.
Yet SBC's share price fell 2 percent after the release of the numbers as investors continued to fret about the continued decline in the company's traditional local phone business.
The company's shares have slipped 3.3 percent so far this year. Like its rivals, SBC is relying on growth in other areas, most notably mobile phones. Cingular, which is 60 percent owned by SBC, added a net 657,000 new customers in the quarter, beating analysts' expectations.
Cingular was to get an additional boost yesterday when regulators were expected to approve its purchase of AT&T Wireless.
Yet there, too, investors may be worried that spending by wireless customers has stopped rising despite the fact that mobile-phone companies are spending billions of dollars to build new, high-speed networks that can transmit more data.
The net result is that although phone companies' revenue overall is rising thanks to their wireless divisions, those gains have not been enough to quiet investors' qualms.
"Phone companies are moving from the businesses that are struggling and shifting to where there's upside," said Todd Rosenbluth, a telecommunications analyst at Standard & Poor's.
He doesn't see the stocks of phone companies "as growth stories. Their days of big moves are in the past."
Not surprisingly, the phone companies' difficulties are trickling down to the equipment makers. Lucent Technologies, the US' largest telecommunications equipment maker, said Wednesday that after losing nearly US$29 billion in the past three years, it earned a full-year profit this year.
Sales also grew for the first time since 2000, rising 7 percent for the fiscal year. Lucent's shares rose 3 percent after the numbers were released, but they are down nearly 10 percent since April, when they hit their peak for this year.
Lucent's chief executive, Patricia Russo, noted that her company had won a US$5 billion order from Verizon Wireless to build its next-generation cell-phone network, as well as several big contracts from mobile-phone carriers overseas.
But the picture in its fixed-line equipment business, Lucent's bread-and-butter for years, is murkier. While demand for Lucent's new optical switches, routers and other equipment for new Internet-based networks is improving, demand for its old circuit-switch equipment is falling.
"It's tough for the equipment manufacturers to make money when their customers are not spending," said Brett Azuma, the head of research at RHK, a telecommunications consultant based in San Francisco.
TYPHOON: The storm’s path indicates a high possibility of Krathon making landfall in Pingtung County, depending on when the storm turns north, the CWA said Typhoon Krathon is strengthening and is more likely to make landfall in Taiwan, the Central Weather Administration (CWA) said in a forecast released yesterday afternoon. As of 2pm yesterday, the CWA’s updated sea warning for Krathon showed that the storm was about 430km southeast of Oluanpi (鵝鑾鼻), Taiwan’s southernmost point. It was moving in west-northwest at 9kph, with maximum sustained winds of 119kph and gusts of up to 155kph, CWA data showed. Krathon is expected to move further west before turning north tomorrow, CWA forecaster Wu Wan-hua (伍婉華) said. The CWA’s latest forecast and other countries’ projections of the storm’s path indicate a higher
SLOW-MOVING STORM: The typhoon has started moving north, but at a very slow pace, adding uncertainty to the extent of its impact on the nation Work and classes have been canceled across the nation today because of Typhoon Krathon, with residents in the south advised to brace for winds that could reach force 17 on the Beaufort scale as the Central Weather Administration (CWA) forecast that the storm would make landfall there. Force 17 wind with speeds of 56.1 to 61.2 meters per second, the highest number on the Beaufort scale, rarely occur and could cause serious damage. Krathon could be the second typhoon to land in southwestern Taiwan, following typhoon Elsie in 1996, CWA records showed. As of 8pm yesterday, the typhoon’s center was 180km
TYPHOON DAY: Taitung, Pingtung, Tainan, Chiayi, Hualien and Kaohsiung canceled work and classes today. The storm is to start moving north this afternoon The outer rim of Typhoon Krathon made landfall in Taitung County and the Hengchun Peninsula (恆春半島) at about noon yesterday, the Central Weather Administration (CWA) said, adding that the eye of the storm was expected to hit land tomorrow. The CWA at 2:30pm yesterday issued a land alert for Krathon after issuing a sea alert on Sunday. It also expanded the scope of the sea alert to include waters north of Taiwan Strait, in addition to its south, from the Bashi Channel to the Pratas Islands (Dongsha Islands, 東沙群島). As of 6pm yesterday, the typhoon’s center was 160km south of
STILL DANGEROUS: The typhoon was expected to weaken, but it would still maintain its structure, with high winds and heavy rain, the weather agency said One person had died amid heavy winds and rain brought by Typhoon Krathon, while 70 were injured and two people were unaccounted for, the Central Emergency Operation Center said yesterday, while work and classes have been canceled nationwide today for the second day. The Hualien County Fire Department said that a man in his 70s had fallen to his death at about 11am on Tuesday while trimming a tree at his home in Shoufeng Township (壽豐). Meanwhile, the Yunlin County Fire Department received a report of a person falling into the sea at about 1pm on Tuesday, but had to suspend search-and-rescue
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