Corvis Feels Qwest Fallout
Shares of Corvis Corp. (Nasdaq: CORV) continued to dip Tuesday, as the fallout from Qwest Communications International Inc.'s (NYSE: Q) capital spending cuts sifts down to its optical systems suppliers.
Citing Qwest's cuts, a one-page note issued by Merrill Lynch & Co. Inc. on Monday suggested investors take a "more cautious intermediate term view" of Corvis's stock.
Corvis shares were down 0.18 (6.77%) to 2.48 in trading Tuesday. In contrast, the Light Reading Index was flat, rising 0.03 (0.01%) to 213.74.
Last week Qwest warned Wall Street that it will fall short of its expected revenue target, and it cut capital spending projections for 2002 to between $4.2 and $4.3 billion from $5.5 billion (see Qwest Lowers Expectations and What's Behind Qwest's Numbers?).
Merrill analysts Simon Leopold and Michael Ching write that because of Qwest's cuts they don't see Corvis booking any revenue from its $150 million Qwest contract in 2001.
"We now expect [Corvis's] 2001 sales to reach $192 million down from $199 million," the analysts write.
Over the long term, however, Merrill's analysts see Corvis being an important optical systems player, given its lead in long-haul WDM transmission systems designed for network spans greater than 600 km. Citing industry forecasts by RHK Inc., the analysts point out that, while North American long-haul spending is expected to drop 10 percent next year, spending for the greater than 600 km segment will grow to $730 million.
— Phil Harvey, Senior Editor, Light Reading