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Wall Street says 'Whoa' to Williams

Light Reading
News Analysis
Light Reading
6/27/2000

The Williams Communication Group (NYSE: WCG) on Monday announced a plan to spend an additional $1 billion on dedicated data centers for IP network services. But on Tuesday, Wall Street gave the company a big raspberry.

Williams shares traded down $5.56--nearly 15 percent--to close at $32.31, following a conference call in which company executives gave Wall Street analysts guidance on financial expectations for forthcoming quarterly results.

In the call, executives lowered expectations for earnings and revenue growth, citing difficulty in provisioning expanded services for existing customers. There was also some discussion of the impact of the $1 billion increase in capital expenditure.

Some analysts thought Wall Street's reaction was overdone.

"They lowered their [earnings] guidance on some of the quarters coming up," said Floyd Greenwood, senior analyst with Prudential Securities. "But people need to dig deeper--the issues aren't that bad. The market overreacted. This is stuff that grows the business."

The $1 billion additional spending was needed to increase capacity for a 'backlog' in demand, said Gil Broyles, a spokesman for Williams.

"The new capital outlay will pay for next-generation transport and switching equipment of IP and optical wave capacity and will fund the acclerated build-out of Williams co-location and data center facilities--typically 50,000 square feet or more in size--in major cities around the country," said a statement issued by Williams on Monday.

That raises the company's capital expansion plan to $5.6 billion over the next two years. Officials did not specify how they would finance the plan, other than saying they "expected to go to the capital markets in 2000."

That's good news for optical networking startups--especially companies such as Avici Systems Inc. http://www.avici.com, Corvis Corp. http://www.corvis.com, ONI Systems http://www.oni.com (Nasdaq: ONIS), http://www.sycamorenet.com (Nasdaq: SCMR), and Sonus Networks Inc. http://www.sonusnet.com (Nasdaq: SONS), all of whom have supply contracts with Williams.

Williams reported revenues of $2 billion in 1999, but the company has yet to earn a profit and is not expected to break even until 2001.

--By R. Scott Raynovich, Executive Editor, Light Reading http://www.lightreading.com

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