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Marconi tumbles 50%
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July 5, 2001: 11:21 a.m. ET
Stock of British telecom equipment maker slumps after warning
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LONDON (CNN) - Shares of Marconi, the UK's No.1 telecom equipment maker, fell more than 50 percent in resumed trading after a profit warning and job cuts.
The shares resumed trading in London Thursday as low as 115 pence after being suspended by the company Wednesday at 245 pence pending a statement. Marconi's action angered investors.
"Marconi's communications to the markets over the last six months have constantly disappointed," David Staples at debt rating agency Fitch told CNN.
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What we've seen in the last 10 weeks is a very, very significant slowing in Europe. That's very much a function of the debt position of our customers. People have just turned the capital equipment tap off.
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George Simpson
Marconi CEO |
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Marconi's American Depositary Shares dropped 54 percent, or $3.80 to $3.23, in morning trading on the Nasdaq.
"Their handling of it was very poor and it really, fundamentally goes back to the fact that only a month ago they were talking about the European market still being a good market for them, with the U.S. being the problem. And now we see that the European markets are also slowing."
Marconi ended a dramatic day Wednesday by announcing 4,000 more job cuts, a 15 percent drop in sales forecasts, and a 50 percent plunge in operating profit to March 2002 from the previous year's £702 million.
The profit warning slashed some £3.5 billion ($4.9 billion) from Marconi's market value, with 422 million shares changing hands, or about 15 percent of its total, according to Reuters data.
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VIDEO
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 CNNfn's Allan Chernoff takes a look at Marconi's troubles. |
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The announcement came two hours after the London markets closed, and CEO George Simpson, who is due to step down later this year, had to reassure stunned investors when he said: "Can I make it absolutely clear, Marconi is financially sound."
Before its suspension, the stock had fallen 65 percent this year and more than 80 percent from a high of 1,250 pence in September 2000.
In May, the company said it expected telecom equipment sales to pick up toward the end of 2001. Since then, its peers have issued profit warnings, saying telecom operators have delayed or cancelled orders.
Other analysts were worried about the company reporting earnings twice a year, compared with its U.S. counterparts and European rivals.
Nortel (NT: Research, Estimates), the world's biggest telecom network equipment maker, shocked investors when it said it would post a second-quarter loss and announced another round of job cuts.
Other telecom equipment makers, such as Tellabs (TLAB: Research, Estimates) of the U.S. and Nokia (NOK: Research, Estimates) of Finland, have issued warnings.
Did company take its eye off the ball?
"The problem with Marconi is it only reports earnings twice a year," Richard Windsor, an analyst at Nomura International, told CNN. "It's not like (rival) Alactel, that issues four quarters of earnings."
Many analysts argued the management should have seen the slump in demand coming as European telecom operators struggle to reign in huge debts they racked up spending $100 billion to acquire high-speed wireless licenses.
Any turnaround in the industry will take time and depends on "telecom operators refinancing themselves through asset sales as they pay down debt," Windsor said.
"It could be sometime in 2002" before we see a turnaround...for the sector," he added.
And for investors burned from holding Marconi stock, Windsor said. " We recommend a neutral stance. There is no point in selling now, but we do see an upside in time."
"What we've seen in the last 10 weeks is a very, very significant slowing in Europe," Marconi's Simpson said on a conference call Wednesday night. "That's very much a function of the debt position of our customers. People have just turned the capital equipment tap off."
Marconi said the latest round of job cuts -- its second in three months – will be worldwide and include 1,000 management posts, reducing its work force to 45,000.
It forecast a further exceptional charge of £150 million ($211 million) this year, partly to fund the layoffs, but said the annual savings will be roughly the same amount.
The company now expects to see signs of recovery in the first half of 2002
Marconi (MONI) suspended its shares Wednesday just after it announced the sale of its medical systems business to Dutch consumer electronics company Philips Electronics for $1.1 billion.
The sale of the unit is its second-biggest disposal to date. Marconi, which was created from the UK defense contractor General Electric Co., sold a defense business to BAE Systems for £7.7 billion in November 1999.
Marconi has sold businesses worth more than £9 billion ($12.9 billion) as it raises funds to turn itself into a purely high-speed telecom equipment maker. 
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