AT&T Again Holds Back On Its Buys

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Trying to slash overhead costs, AT&T Broadband plans to cut hundreds of jobs and has told telecom equipment vendors to hold off on shipments until at least April, sources said last week.

The equipment-shipment delay extended what had been a fourth-quarter moratorium attributed to inventory imbalances. Some vendor stocks were pummeled after word of that cutback hit the press in late November.

AT&T Broadband had been reported to be considering as many as 2,000 layoffs. Last week, an AT&T executive indicated that number was too high.

AT&T Corp. chief financial officer Chuck Noski told Reuters last week the layoffs at Broadband would be in the "hundreds, not thousands."

"We probably have more consolidating to do at the AT&T Broadband headquarters," Noski said. "In the customer-care arena, we have a number of care centers around the country that we think can probably be consolidated and rationalized and made more efficient."

AT&T Corp. spokeswoman Eileen Connolly confirmed the report but declined further comment.

What could be a bigger blow-at least to publicly traded equipment vendors-is the plan to delay shipments of telecommunications equipment, extending the November move.

Some analysts expected AT&T Broadband to reopen the equipment spigot in January. When the new orders didn't come, except in small amounts, vendor stocks continued to slide.

According to informed sources, AT&T Broadband has informed several vendors via electronic mail that it will not resume accepting shipments until April-and even then only on an as-needed basis.

AT&T Broadband spokesman Steve Lang would not comment about telecom equipment delays. But he did say the MSO has enough modems, digital set-tops and telephone network interface units for now, and has told vendors not to send any more this quarter.

Though he had no specific knowledge of the AT&T e-mails, Josephthal & Co. analyst Lawrence Harris said he wasn't expecting AT&T to resume shipments until much later.

"Our assumption has been that if you're looking for any significant improvement [in AT&T shipments] it would not occur until the second half of the year," Harris said.

While Harris said that the news would have a greater effect on vendors like Antec Corp., Harmonic Inc. and C-COR.net Corp. than others, he didn't expect it to last for long.

"At some point in time, unless they're really overstocked, there will have to be a resumption of shipments," Harris said. "They're working down the inventory, shrinking the business.

"Equipment purchases will return, but probably not in any significant magnitude for the next few months."

Part of the reasoning behind the equipment delays is that AT&T is struggling to keep its costs down as it moves closer to an AT&T Broadband initial public offering this summer. According to a restructuring plan announced last October-which will split AT&T into four separate companies-about a year after the Broadband tracker is issued, the unit would be spun off into a separate, asset-based company.

To do that, AT&T must shore up the unit and pare down total corporate debt.

Goldman Sachs & Co. Inc. analyst Richard Greenfield said that despite the downturn in AT&T Broadband's quarterly numbers, he sees significant growth potential for the company in the future.

"I think we'll see a dramatic improvement over the next couple of quarters," Greenfield said. "The next two years are going to look a lot better than the last two years. There is significant opportunity on the margin side."

Some job cuts may be overdue. After merging with MediaOne Group Inc. last May, AT&T Broadband was expected to pare down its work force, especially at its Denver headquarters. The acquisition of MediaOne added more than 15,000 people to the AT&T payroll.

AT&T Broadband currently has about 53,000 employees across the country.

AT&T capped off a tough year with a major slide in earnings and operational cash flow, particularly at Broadband, which reported a cash-flow decline of more than 13 percent in the fourth quarter.

AT&T Corp. chairman C. Michael Armstrong looked hard for the bright side last week, and found it in the unit's substantial growth in new services-customers.

"In a way, 2000 was a tale of two AT&Ts: First, the transition from long distance is accelerating, which resulted in downward revenue and margin pressure," Armstrong said in a conference call with analysts last Monday. "But second, the growth businesses are executing and successfully scaling."

Operational cash flow at AT&T Corp.'s video operations was down 3 percent in the fourth quarter ended Dec. 31, capping off a year the company would like to forget.

Armstrong told analysts the decline at AT&T Broadband was due to increased programming and labor costs, the timing of new network launch payments and marketing distribution reimbursements from programmers. Nonetheless, Armstrong noted the cash flow decline and promised changes.

"That's not where it should be, not where we want it to be," Armstrong said. "We have a definite focus on that and it will get better."

Video cash flow declined to $736 million for the period, from $759 million in 1999. Operating cash flow at Broadband was $507 million, down 13.2 percent from $584 million in fourth-quarter 1999.

AT&T Broadband added 825,000 new revenue generating units-a benchmark of digital, data and telephony customers-for the quarter, ending with 4.4 million. Revenue growth was up 11.8 percent, to $2.5 billion.

Basic subscriber growth was 0.4 percent. The MSO ended the year with 16 million video subscribers.

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