Copper Mountain and Covad Communications imploded in early trading Wednesday on disappointing financials, leading to a sharp sell-off of stocks related to digital subscriber line technology.
DSL shares were rocked across the board. DSL equipment company Copper Mountain (Nasdaq: CMTN) was the biggest decliner, falling 63 percent, or 16.90, to 9.90. Covad (Nasdaq: COVD), a DSL service provider, was off 56 percent, or 4.80, to 3.78. Northpoint (Nasdaq: NPNT), a Copper Mountain customer and DSL provider, was down 23 percent to 4.68. Service provider Rhythms Netconnections (Nasdaq: RTHM) was off 24 percent to 2.88. Efficient Networks (Nasdaq: EFNT), which makes DSL access equipment, was down 39 percent, or 18, to 27.
Analysts were busy handing out the downgrades. Copper Mountain was cut to a "neutral" from "strong buy" at W.R. Hambrecht. CS First Boston cut its ratings on Northpoint and Rhythms Netconnections to "hold" from "buy."
Here's what got the sell-off rolling. Copper Mountain topped estimates with third quarter earnings of 27 cents on sales of $93.5 million. But Copper Mountain dropped a bombshell on investors with its outlook.
Citing a slowdown in spending from competitive local exchange carriers (CLECs), Copper Mountain projected sales of about $60 million in the fourth quarter, roughly a 35 percent drop from the third quarter. Earnings will be between 4 cents and 6 cents a share, way short of the current First Call Corp. estimate of 28 cents a share. Copper Mountain projected sales between $300 million and $330 million in fiscal 2001 and earnings of between 16 cents to 25 cents a share. Analysts were expecting a profit of $1.37 a share in fiscal 2001.
Copper Mountain's 2001 sales projections were more than $200 million lower than analysts' estimates.
W.R. Hambrecht analyst Tim Savageaux cut his revenue and earnings estimates substantially. "These decreases are a direct result of the company's considerable reliance on CLEC customers whose financial and operational outlook has been uncertain," he said in a note.
Not to be outdone, Covad dropped almost as big of a bombshell on investors. Covad reported a wider-than-expected third quarter loss, and said tight financial markets are causing some clients to have trouble paying bills, leading Covad to reduce its own sales by about $11.4 million.
The DSL service provider reported a third-quarter net loss of $189.9 million or $1.22 per share on revenues of $66.7 million. Covad's earnings compared to a net loss of 47 cents a share on sales of $19.1 million in the same quarter last year.
Analysts polled by First Call expected a loss of $1.18 per share.
• The Day Ahead: Techs plunging off Copper Mountain
• Copper Mountain meltdown: Outlook gloomy
• Covad says client troubles lead sales>