DSL equipment maker Copper Mountain warned about its fourth-quarter revenues. It's been a rough year for the companies, like Copper Mountain, that provide equipment to competitive local exchange carriers (CLECs). Though Copper Mountain would like to try to broaden its customer base to include more incumbent carriers, even that now seems uncertain. It looks like a long, painful road ahead for the company.
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Digital subscriber line (DSL) equipment provider Copper Mountain (Nasdaq: CMTN) announced more bad news today. The company, whose shares are down to roughly $5 a share from a 52-week high of $125.69, is battling loads of shareholder class-action suits, customers who are reducing spending and can't pay for products, and now another fourth-quarter warning. Copper Mountain, Fools may remember, issued a fourth-quarter warning just a few weeks after its CEO painted a seemingly different picture in a StockTalk interview with Chris Rugaber. Given all these things, the road ahead for Copper Mountain looks painful. When Copper Mountain warned back in October, it said that it expected sales to be $60 million and EPS to come in at $0.04 to $0.06. Analysts at the time projected that Copper Mountain would earn $0.28 a share. Today, Copper Mountain broke the news that revenues will actually be in the range of $46 to $49 million. The company didn't provide specific earnings guidance. Copper Mountain is choosing not to book an $8 million order because it's not sure the customer can pay up. This isn't surprising, if you've been following telecom stocks over the last several months. A company like Copper Mountain sells equipment to competitive local exchange carriers (CLECs), upstarts that are attempting to play ball with incumbent carriers (ILECs) like Verizon (NYSE: VZ). It's been a harsh existence for CLECs recently, as they've struggled to fund their expansion and compete effectively against the ILECs. As the CLECs have reduced spending and delayed orders, companies like Copper Mountain have been affected, since most of Copper Mountain's sales are made to those providers. What is Copper Mountain doing to address this problem? The only thing it really can do is try to broaden its customer base by attempting to sell more products to ILECs instead. This is all well and good, but now it appears that at least some of the heretofore solid incumbents are struggling, too. SBC Communications (NYSE: SBC), the second-largest local phone company in the country, issued an earnings warning recently, and Efficient Networks (Nasdaq: EFNT), which sells DSL equipment to more ILECs than CLECs, warned as well. It's not a pretty picture for Copper Mountain: The company can't improve the health of its customers and without strong customers, how is it supposed to thrive? It won't, simply, until the situation for CLECs changes. And that, unfortunately, is not a given.
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