The year-old Asian financial crisis is being blamed for an increasingly gloomy outlook for the third quarter, which ends this week. The situation is compounded by growing economic worries in Russia and Latin America and a weakened semiconductor market.
Several companies warned investors last week earnings would not meet expectations for the quarter. Telecom stocks were hit particularly hard when Alcatel Alsthom announced Sept. 17 its earnings would fall short of analysts’ estimates.
The French telecom equipment vendor said its telecom segment’s income will be “adversely impacted by sharp investment cuts recently decided by some traditional operators and the deepening of the Southeast Asian and Russian crises.”
An Alcatel spokesman said the company has experienced a slowdown in mobile-phone-network sales in Asia.
Other vendors and manufacturers that have significant interests in the region have suffered. Several of Motorola Inc.’s business segments continue to experience increased pricing pressures due to weakened Asian currencies, and L.M. Ericsson’s Mobile Phones and Terminals division reported flat sales during the second quarter.
Other companies that last week announced they expect earnings to be impacted by world economic crises include:
Philips Electronics NV said its overall earnings will include a significantly higher loss for Philips Consumer Communications (PCC), the telephony venture with Lucent Technologies Inc. that has been plagued recently with bad news, including that it will not achieve break-even this year as expected and that it will be late with certain products. “Although I am not happy with our performance, we have to accept that the economic environment in certain parts of the world has deteriorated,” said Cor Boonstra, president and chief executive officer of Philips, who hinted an announcement about the future of the PCC venture could be forthcoming.
“We are examining all options with respect to PCC and we will complete our evaluation together with our partner within four weeks,” said Boonstra. “We will report on our findings and actions when we publish our third quarter earnings on Oct. 22.”
Philips said it expects earnings for the third quarter to decline significantly from last year due in part to PCC’s results and lower margins in its semiconductor sector.
CellStar Corp., a wholesaler and retailer of wireless handsets and other wireless communications products, said it will not meet analyst expectations during the second half of the year, mainly due to continued turmoil in global markets and the recognition of losses related to its investment in Topp Telecom Inc. “While revenues will likely meet analysts’ expectations, operating margins and net income will be significantly impacted in the third quarter and possibly the fourth quarter,” said Dick Gozia, president of CellStar. The company said it expects to release its third quarter results Sept. 30.
IFR Systems Inc. indicated the company will report a net loss for the first quarter of fiscal 1999 because of weakened conditions in test equipment markets around the world. IFR Systems said it expects to report a net loss of about 25 cents per share for the first quarter of fiscal 1999 ending Sept. 30, on revenues of $40 million. The first quarter of fiscal 1998 saw a net income of $1.9 million, or 33 cents per diluted share, on revenues of $25.5 million.
“What first appeared to be a slow-down in Asia has spread to other markets around the world, including the U.S. market, as major customers delay or reduce capital spending,” said company President and CEO Alfred Hunt III. Hunt said the company has formulated a cost-reduction plan that involves personnel reductions, wage freezes and cuts in other expenses. IFR expects these actions to reduce costs by more than $6 million on an annualized basis.
Harris Corp. said its fiscal first-quarter earnings from operations will be slightly below last year’s first quarter and about 10 percent below analysts’ consensus estimate of 58 cents per share. Total year operating results also will also fall below expectations by about 10 percent, said the company.
“The semiconductor market has continued its unprecedented downturn and has been joined by general market weaknesses that started in Asia, but have now spread to Russia, eastern Europe and South America,” said Phillip W. Farmer, chairman and chief executive officer of Harris. “For Harris, the impact is now being felt in communications businesses as well as semiconductor, primarily in the form of decreasing prices and, to a lesser extent, in demand.”
