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AT&T hits lowered targets, but long distance remains a drag

AT&T Corp. (NYSE: T) said Monday its pro forma fourth quarter earnings and revenue were in line with already lowered expectations, but the company's long distance business continued to sag. AT&T also gave growth projections for its individual units.

AT&T, which is planning to split into four businesses, reported pro forma fourth quarter earnings of 26 cents a share on sales of $16.9 billion. Revenue was up 3 percent from a year ago, but earnings fell 51 percent from a year ago. The results matched First Call consensus estimates. AT&T said the decrease was due to the acquisition of MediaOne and losses at Excite@Home (Nasdaq: ATHM). For the year, earnings were down 22 percent to $1.63 a share.

Including charges, AT&T reported a loss of 45 cents a share, or $1.7 billion. The loss was largely attributed to Excite@Home, which wrote down $4.6 billion of goodwill and other acquisition-related intangible assets. AT&T's also took a $1.6 billion charge to account for its investment in Excite@Home.

Despite the gloomy results, AT&T did have a few bright spots. AT&T Wireless (NYSE: AWE), which trades as a tracking stock and will be completely spun off in mid-2001, reported revenue growth of 39 percent in the fourth quarter to $3 billion. AT&T Broadband, the company's cable unit, showed revenue growth of 11.8 percent to $2.5 billion for the quarter. For the year AT&T's wireless and broadband units grew sales 37 percent and 10.4 percent respectively.

But AT&T's business unit posted sluggish revenue growth for the fourth quarter, up just 0.7 percent to $7.1 billion. And AT&T's consumer business was plagued by declining long distance revenue. AT&T's consumer business saw its sales decline 14.7 percent to $4.3 billion in the fourth quarter. The consumer business was also hurt by AT&T WorldNet. Revenue fell 4.4 percent for WorldNet amid tough competition among Internet service providers.

To separate its growth businesses from struggling units such as AT&T's long distance division, the company announced broad restructuring plan in October. "We came in below expectations on long distance, but our growth businesses did well," said Chairman and CEO C. Michael Armstrong on an analyst conference call.

Armstrong said long distance sales were down because of lower 800 number traffic due to the economic slowdown, migration to lower priced calling plans and a transition to new technologies such as wireless, said Armstrong.

Since it's planning to split up, AT&T was mum on its outlook for 2001. Revenue growth for the first quarter is expected to be similar to the fourth quarter results. First quarter earnings, excluding one-time items, will be in the range of 17 cents a share to 20 cents a share. Those projections are in line with previous projections.

Here's AT&T's forecast by business unit with restructuring targets:

  • AT&T Wireless is expected to grow sales at the high end of a 30 percent to 35 percent range in 2001. Earnings before interest, taxes, depreciation and amortization (EBITDA) is expected to grow in the mid-60 percent range. AT&T also said it will begin a share exchange offer in March. Following that offer, AT&T will distribute AT&T Wireless to AT&T shareholders. AT&T Wireless will be spun off in mid-2001, "but the exact timing has not yet been determined," the company said.

  • AT&T Broadband's revenue growth will accelerate to the mid-teens for 2001, the company said. The company said it will continue to add new subscribers and services at a rapid clip and improve profit margins by 3 percent in 2001. "You can expect these improvements to start out slowly and build over the year," said Chief Financial Officer Chuck Noski. AT&T Broadband is planning for an initial public offering in the fall.

  • AT&T Consumer will continue to see revenue decline, the company said. Revenue will fall "mid- to high-teens for the full-year 2001." "We're managing the business for returns, but are investing in the future," said Armstrong, who noted the consumer business will incur costs to launch digital subscriber line (DSL) service and battle Baby Bells, which are entering the long distance market.

    Profit margins before interest and taxes are expected to fall 6 and 8 percentage points in 2001 from the 37.5 percent in 2000. Most of the decline is expected to come in the first quarter. AT&T said a tracking stock will be distributed for AT&T Consumer in the third quarter of 2001.

  • AT&T Business sees a revenue dip in the first quarter largely because of long distance competition. Profit margins before interest and taxes are expected to fall 6 and 8 percentage points in 2001 from 23.3 percent in 2000.


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