An early bah-humbug

AT&T shipping stoppage hits vendors' stock hard AT&T Broadband cut off vendor orders for telephone network equipment the day after Thanksgiving, causing vendor stocks to tumble immediately. However, the move was nothing out of the ordinary for the multiple systems operator, which has been notoriously inefficient in its inventory management since its previous incarnation as Tele-Communications Inc.

The MSO has enough inventory to handle its needs through the rest of the year, said a spokesman with AT&T Broadband. "We'll just use what we have," the spokesman said, noting that orders would resume next year.

The move stung the vendor stocks of CommScope, Harmonic, Scientific-Atlanta, and - most notably - Antec, but it didn't shock those who watch the company closely.

"I don't think the AT&T cutback is really a big deal," said Michael Harris, president of Kinetic Strategies. "If you look at the equipment shortages that they faced in the first half of the year... they really pushed their suppliers to the brink and loaded up the warehouses heading into the year-end."

Stopping orders makes sense as AT&T Broadband looks to stay within its 2000 capital budget, Harris said. "Shutting down orders in the fourth quarter - they'll be able to do that. They have enough to get through the end of the year and reopen it in 2001 when they're looking at a fiscal accounting period," he said.

Industry watcher Jimmy Schaeffler, chairman and CEO of The Carmel Group, faults the company's ongoing inventory management woes. "AT&T still has a lot of work to do before it can manage all of the parts of the business as well as what it's capable of," Schaeffler said. "This, I think, is one indication of the difficulties that they're having managing broadband and cable and telephony and all the other telecom products that they're trying to put together at the same time to the same consumer. It's just not being really well-run right now."

The stock market acted appropriately, Harris said. "Yeah, it happens every year, but 40% of [Antec's] sales are from AT&T, so clearly any time there's any kind of rattling from their biggest customer, those stocks get rattled," he said.

Harris credited tighter government disclosure regulations for making the cutback public. "Antec in the past wouldn't have done a press release that said, `Guess what? We've been told to stop shipping to our largest customer.'"

That, he said, is "a good sign as far as consumers, Wall Street, retail investors having a better understanding of the state of the business. But it's not a big change. Year in, year out, people have to clamp down on their inventory at the end of the year [and] stay within their cap ex spending."

AT&T named Concert CEO and PointCast alum David Dorman president last week in a move designed to turn around AT&T's core businesses while CEO C. Michael Armstrong concentrates on the carrier's restructuring.

Dorman will head the operations of AT&T's consumer and business services units, which contribute the bulk of the company's cash flow but which have experienced execution problems and slow growth amid hotly competitive markets.

"Putting another bright, aggressive guy on the delivery front is a good move for them," said George Sacerdote, president of management consulting firm Sacerdote & Co. It also frees Armstrong to address the complex financial moves involved in the company's four-way split, he added.

Dorman's primary challenge is the economy-of-scale problem facing AT&T's voice businesses, Sacerdote said. Long-distance prices are falling so fast that AT&T is struggling to maintain revenue growth and profits, and it must rethink the delivery of services to manage costs, he said.

Dorman also has to change the revenue mix of AT&T's most mature businesses and "re-energize them into a growth trajectory going forward," said Pascal Aguirre, vice president for Adventis. That means steering them away from legacy voice transport to next generation data applications at the transport and local levels, Aguirre said.

Dorman gained experience in high-end business services at Concert, the Internet at PointCast, local access at Pacific Bell and transport at Sprint. Ultimately, Dorman could be Armstrong's successor, Aguirre said. Dorman replaces John Zeglis, who was appointed chairman and CEO of AT&T Wireless in December of 1999.