Asian telecoms suffer after Cisco warns

Cisco's warning is putting Asian techs under pressure

By Staff and wire reports

HONG KONG, China -- An earnings warning from Cisco Systems and a downgrade on Intel is putting Asian techs and telecoms under pressure.

U.S. network-parts and router maker Cisco warned that third-quarter earnings and revenue would drop 30 percent from the previous quarter.

QUOTE "Everything is going to be down. " - Joe Locke, ABN Amro's Asian telecommunications analyst

Investors take that to mean growth is slowing for Asian telecommunications companies such as Pacific Century CyberWorks, China Mobile and China Unicom.

"Everything is going to be down," said Joe Locke, Asian telecommunications analyst for ABN Amro. "It's by implication, it affects valuations and investor appetite."

Cisco also said Monday it is cutting 8,500 jobs, about 1,000 more than it announced last month. That comes after a report that mobile-phone company Ericsson plans to slash at least 6,000 jobs when it releases earnings Friday.

The rapid deceleration in Cisco's earnings show telecommunications companies aren't investing as heavily in infrastructure. Fears of slowing growth prompted investors to sell off telecom operators.

Asian telecoms sell off in knee-jerk fashion on U.S. technology disappointments.

"Whenever there is bad news flow from the U.S., we see a knock-on effect in Asia," said Jahanzeb Nasser, Internet and telecom analyst with ABN Amro. Investors don't differentiate between manufacturers and service providers, he said.

The slowdown also suggests investors will sell off Cisco's partners, such as system integrators Datacraft Asia Ltd., Computer & Technology and AsiaInfo Holdings, which is building out China's Internet infrastructure.

Datacraft Asia, which installs Cisco's equipment and is its preferred partner in Asia, saw its stock tumble 3.6 percent to $3.76 Tuesday, its lowest point in more than three years

But Cisco's problems are not entirely bad news. It will likely be forced to lower prices for networking equipment.

That would allow Asian telecoms to expand more cheaply in the future, once they've used their inventory.

"What's bad for the equipment providers is not necessarily bad for the system providers," Locke said.

Ericsson likely to shift to China counterparts

Investors are not responding to that line of thinking. After buying Asian telecoms wholesale last year, they are showing much more skepticism in 2001.

"Investors bought telecom stocks without asking difficult questions about where the data market was going last year," Locke said. This year's selloff and closer scrutiny is a necessary reaction to a lack of diligence last year, he added.

Ericsson's troubles could also benefit Asian manufacturers. Ericsson already outsources production to Asia, and has two joint ventures in China.

Cost cutting efforts will likely benefit its partners such as mobile-equipment and handset maker Nanjing Panda.

"Obviously if Ericsson gets out of the manufacturing business, a lot more orders are going to come to a company like Nanjing Panda," said Viktor Ma, China and Hong Kong technology analyst for Morgan Stanley.

With Intel set to report earnings on Wednesday, investors were also watching Asian semiconductor stocks. Morgan Stanley on Monday cut its earnings forecast for Intel, prompting the stock to drop 6.5 percent.

That drove stocks like Taiwan Semiconductor Manufacturing Co. down in Taiwan. In Japan, chipmakers like NEC fell and other techs such as Toshiba Corp. and Fujitsu Ltd. were also down.

Reuters contributed to this report.

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