SJ Mercury News: Impact of the telecom mess on Silicon Valley

A Sunday business story about how the mess in the telecom sector is affecting Silicon Valley.

Here’s the really bad news for Silicon Valley: Level 3’s capital spending plunged from $1.1 billion in the first quarter of 2001 to $47 million in the first quarter of 2002.

Telecom accounts for about 20 percent of all tech spending. And the drop in capital spending by telecom companies is hurting a broad range of Silicon Valley companies, from giants like Cisco Systems to the freshest start-ups.

But many of these companies are also taking a hit through their own customer-financing programs.

The largest of the telecom equipment companies — Cisco, Lucent Technologies and Nortel Networks — either loaned money to or allowed customers to finance equipment purchases. The theory, at least in good times, was that the customers would build new networks and use part of their profits to repay the financing.

But as the bankruptcies have mounted, so have defaults on these loans.

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