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Quarter-End Insights

Our Outlook For Media & Telecom Stocks

The weak are starting to fall by the wayside in media and telecom.

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Last quarter we highlighted the extreme divergence between the good and the bad within the media and telecom sector, and things have only gotten worse for weaker firms over the past three months. Most notably, the bleak picture we painted for telecom equipment vendors, especially  Nortel (NRTLQ) and  Alcatel-Lucent (ALU), is now painfully visible. Nortel filed for bankruptcy protection in January and Alcatel-Lucent limped to the finish line in 2008, posting yet another weak quarter, with sales declining and cash flow anemic. We're still skeptical that Alcatel can turn its business around any time soon, if at all, in what will likely remain a very challenging environment through at least the first half of 2009.  Ciena (CIEN) CEO Gary Smith nicely illustrated the woes in the sector after his firm reported weak quarterly results, stating that many service providers are now setting monthly, rather than annual, equipment spending budgets in response to ongoing uncertainty in global economies.

Michael Hodel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.