Morgan Stanley Global Communicator - June 2004

June leading indicators improve
Four of our six leading indicators for the wireline equipment industry were positive in June, up from three in May. Our global carrier capex forecast was revised upward and carrier revenue estimates for 2004 and 2005 have improved. The most recent revision to global GDP estimates by our chief economist, Stephen Roach, was positive, and total connections were up in CQ1:04. Two metrics deteriorated this month, as our enterprise equipment spending forecast fell to 13% Y/Y growth from 15% last month and communications equipment new order data was below the seasonal norm for May.

We forecast a 9% increase in 2004 global capex, up from 8% last month
Our 2004 global capex estimate indicates 9% Y/Y growth, up from our May estimate of an 8% annual increase. On a constant-currency basis, we forecast growth of 5% in 2004, an increase from 4% last month. Our global wireline forecast stands at 3% in 2004, unchanged from May.

U.S. enterprise spending forecast at 13% growth for 2004
Morgan Stanley U.S. economist, Dick Berner, forecasts 13% growth for enterprise equipment spending in 2004, down 170 bps from May. Mr. Berner’s 2005 growth estimate is unchanged at 11%.

Global Wireline Networking industry views
Our telecom equipment industry views are Cautious for Europe and China and Attractive for North America. We view the India, Japan, and Korea industries as In-Line, as we believe valuations for the group remain better than for most of their global peers.

Morgan Stanley Global Communicator Part 1 of 1 (28 pages)