Nextel latest to warn over economic woes

The wireless phone service provider is the latest tech company to tell investors that its next quarter won't look so good.

2 min read
Nextel Communications on Wednesday became the latest tech company to tell investors that its next quarter will not look good.

The wireless service company announced that first-quarter domestic operating cash flow will be 15 percent less than the fourth quarter's $418 million. Nextel also predicted it will add 500,000 new domestic subscribers during the quarter, compared with 521,200 the company added in the previous quarter.

The Reston, Va.-based company attributed the shortfall to a slowing economy. "Our domestic operations have begun to feel the impact of a slowing economy and related cost control measures being implemented by many businesses," Nextel CEO Tim Donahue said in a statement. Donahue added that the company is also focusing on cost cutting.

Investors hammered shares of Nextel, which closed down $5.81, or 28 percent, at $14.63 on a volume of 84.4 million shares, nearly eight times more than the stock's average daily volume of about 11 million shares. The stock also traded as low as $12.75, a new 52-week low compared with its high of $82.93 over the same period.

In its fourth-quarter earnings release, the company had expected cash flow for fiscal year 2001 to increase between 50 percent and 65 percent, but it also cautioned investors that domestic cash flow might fall sequentially in the first quarter because of higher operating expenses.

But the gloomy economy also adds more uncertainty to the equation. "Investors are thinking, 'If (the warning) is truly due to a slowing economy, then when will Nextel start to benefit from a robust economy that has turned around?'" said Frank Marsala, an analyst at ING Barings.

Nextel is not the only wireless company to warn of rocky times ahead. Mobile phone maker Ericsson announced this week that first-quarter sales would be flat or slightly lower instead of rising 15 percent as previously expected and that sales of mobile phones would be lower than last year's first quarter.

Motorola also said Tuesday that it plans to cut 7,000 jobs in its global cell phone unit to reduce costs in its wireless handset business during a time of sluggish sales.

Many industry watchers expect that more people will use cell phones and wireless services over the long term. A recent study optimistically suggests that one in four people will have a phone by 2006.

However, this year may be a nasty speed bump on the way to better growth as the economic slowdown runs its course through the wireless industry.