October 27, 2000
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Back on the 10th when Reuters began its efforts to pump out bad press on telcom equip manufacturers, profits were doing well and there was a general consensus among tel service providers that infrastructure (wire, fiber, sat terminals, remote plant switches, etc.) were in need of upgrading. New customer growth plus the installation of multiple residential lines and home businesses have taken up spare capacity and doubled the need to build up existing systems. Urban sprawl continues to drive the need to provide switches, copper, and fiber out into the countryside and broaden capacity back to the main telco plants.
While Nortel admitted that they cannot find enough people to install their systems and that the 'people shortage' is crimping earnings, that statement alone proves that the analysts are once again fabricating 'falling revenue' stories in order to drive a skittish market down for their own short term gains. If Nortel had had enough people to install their equipment, their bottom line would have been above the posted 90% revenue increase (hardly justification for a panic sell-off) and likely above the analyst number of 125% (something the blue chips have rarely done).
As far as fiber/communications businesses, analysts have claimed that inventories of communications equipment and materials are increasing - yet no analyst has ever provided any statistics on the total value of inventory this quarter versus the same period a year earlier. Further, analysts have blamed individual shareholders for the market fall even though, in the same broadcast, CNBC, Bloomberg, and NWI were showing huge blocks being moved by institutional investors whose capital shifts are historically blamed for rapid valuation changes.
The point is that analysts are generally paid by capital churning investment houses rather than $0.05 for each factual word. The truth is that the communications industry has never been healthier - in spite of the fact that Congress often gets in the way of mergers that could fund even greater infrastructure improvements. Factors driving the purchase and installation of telcom equipment such as population growth, small business growth, health industry net growth, development of community-wide public utility communication networks, transportation and traffic control / modernization, compressed video downloads, on-line education, and emerging nations will all contribute to an industry that has only seen a small fraction of its potential.
If there is any need to consider one sector of the market ripe for a sell-off, it would have to be the financial services and analytical markets whose rapid, short-term profits have to be approaching an abrupt end as stocks reach that magic PE established in an earlier epoch.
Take heart investors, communications equipment, fiber, wire, switch, carrier & router technology is the sector that will grow long after any remaining vestige of analyst credibility has fled even the most gullible investor's mind.
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