Level 3 Shares Dip on Warning
These cost reductions are part of a larger plan to trim $2.3 billion by 2003, according to the company. Level 3 officials also said that it would focus on selling to established customers rather than newer ones. The company reported that roughly 20 percent of its revenue base is at risk, due to the possibility that customers will be unable to pay their bills. Concurrent with its first-quarter earnings release, Level 3 was forced to write-down a part of their backlog due to lingering concerns over customer credit worthiness.
Along with announcing workforce reductions, Level 3 revised guidance for 2001, saying that it now expects to lose $7.50 per share versus previous forecasts of $7.25 per share. In midday trading, shares of Level 3 were down 1.21 (16%) to $6.41.
The news confirms the growing suspicion that Level 3's long-term financial health is being threatened, as losses mount. In a report on "The New Carrier Landscape," issued earlier this month by The Optical Oracle, Light Reading's subscription research service, Level 3 ranked last in financial and technology positioning in an assessment of 14 leading carriers (see Carriers at Risk) .
This morning, other analysts voiced their concerns about the company.
In a research note to clients, Merrill Lynch & Co. Inc. analyst Adam Quinton wrote, “Disaggregation of the industry simply isn’t materializing fast enough and to a degree consistent with Level 3’s business plan and is effectively going into reverse as smaller webcentric and communications intensive business models continue to fail through lack of funding.”
Quinton believes that lengthening selling cycles for basic transport services is what's forced Level 3 to reduce revenue estimates for the second time in two months, while announcing drastic cost-cutting measures. Citing the concerns above, Quinton lowered both his intermediate and long-term ratings to Neutral.
— Christopher P. Bulkey, Financial Analyst, Light Reading http://www.lightreading.com
Editor's Note: Light Reading is not affiliated with Oracle Corporation.