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CLEC weakness hurts Turnstone

Turnstone Systems Inc. (Nasdaq: TSTN) said Monday it is lowering its revenue estimate for the fourth quarter ending Dec. 31, due to increased weakness among its competitive local exchange carrier (CLEC) customers and recent changes to their capital spending plans.

Shares closed up 2 to 29.5 Friday. The stock has been treading water since the company provided guidance Oct. 17, when it topped analyst forecasts for its third quarter.

Since then, Turnstone said it has experienced major changes in customer demand which lead it to revise guidance for revenue in the current quarter. Weakness in the CLEC sector has intensified, resulting in a scaling back of network build-out plans by certain customers. In addition, concerns about reduced capital spending have broadened to international markets.

Also, DSLAM (Digital Subscriber Line Access Multiplexer) vendors that used to finance certain CLEC customers' purchases of Turnstone products are scaling back the practice due to concerns about the CLECs' financial condition.

As a result of these changes, the company is revising revenue to about $38 million for the December quarter. It is leaving previous guidance for operating expenses unchanged. The company will provide an updated view of the first quarter of 2001 when it announces its fourth quarter results.

The company said its long-term outlook remains strong, and it is in the process of diversifying its customer base. Its three biggest customers are currently Rhythms NetConnections (Nasdaq: RTHM), Network Access Solutions (Nasdaq: NASC), and Covad Communications (Nasdaq: COVD).