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The 3 A.M. call to telecoms
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It seems despite last week’s early euphoria over the prospects of a president who could put the United States back on a rising trajectory, the technology sector, specifically telecommunications companies, didn’t get the memo.
Last Friday, Reuters reported that the tech sector “may be the next group swept up in a restructuring wave that began on Wall Street,” meaning that investment capital is officially drying up all over the place. The Reuters piece draws a number of quotes from investment bankers and acquisition lawyers, pinning votes of confidence for the sector against those who say things are bad, getting worse – but, one thing the piece does well, is point out that bankruptcies in the tech sector are on the rise and will likely increase over the coming months. If that’s not a sign of drying investment markets, I don’t know what is.
The technology blog GigaOm added to this idea that the sector as a whole is in trouble by pinning it on telecommunications companies. According to the piece, AT&T and Time Warner returns are getting pummeled in places like Arizona, California, Texas and Florida – where their exposure to the housing crises was greatest. If the demand for homes decreases, (which it is) than demand for wireline connections, internet connections and all related technology declines, hence last week’s poor outlook for Cisco – the “bellwether of the telecom and infrastructure sector.”
Add that analysis to today’s news that North America’s largest telephone equipment maker, Nortel, posted its biggest net loss in seven years and announced plans to cut 1,300 jobs and you have a very grim outlook indeed.
So, you may ask, can the telcos look to the new president for hope? Only the hope that they are involved in business other than traditional telecommunications. BusinessWeek’s Olga Kharif reported this morning that President-elect Barack Obama is looking for people to head the Federal Communications Commission and it’s not likely that he’ll choose someone with ties to traditional telcos. Rebecca Arbogast, a principal at investment bank Stifel Nicolaus said, “[Obama] has been more in tune with the…providers like Google. I'd expect that the very strong run the (telecom providers) have had under the Bush Administration has worked itself out.”
Many investors will be focusing more and more on such positions within the Obama White House, especially over the next few weeks when Wall Street has little else to focus on. But, President-elect Obama is widely seen as the Web 2.0 President, and he’s vowed to create jobs in the U.S. economy by leveraging new technologies from Silicon Valley to the Rust Belt. I doubt the sector has too much to worry about.
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