Covad leads DSL plunge

The devaluation of technology and communications stocks is starting to show up in companies' earnings statements, triggering radical, sectorwide price drops that leave no company unscathed.

Last week, it was DSL providers' turn to be hit. Shares of Covad Communications took a beating after the company reported a revenue shortfall that it attributed to problems collecting payments from capital-constrained ISPs. Covad shares fell 59% to $3.56 on Oct. 18, before rebounding slightly to $4.35 the next day.

"What's most disconcerting is that Covad, with nine nonpaying ISP customers, is probably not alone among the [data] CLECs," said Joe Altobello, analyst at CIBC World Markets. "I can't believe all the nonpaying ISPs are only Covad customers."

Indeed, fellow DSL providers NorthPoint Communications (down 18% to $5) and Rhythms NetConnections (off 25% to $2.81) were caught in the downdraft, as was Copper Mountain Networks, which dropped 60% after releasing some bad news of its own.

While it beat third-quarter earnings per share estimates by a penny, Copper Mountain said recent reductions in the capital expenditure forecasts of many of its CLEC customers meant its revenue and earnings would decline substantially in the fourth quarter.

Copper Mountain reported revenue of $93.5 million for the third quarter but projected revenue of about $60 million next quarter.

On a positive note, privately held New Edge Networks announced $140 million in new funding. For more details, go to www.internettelephony.com.