A fragment from Briefing's editorial on the com industry today:
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The Telecom Story
Telecommunications is not the Answer with a capital A, largely because the latter two factors noted as problems for semi and semi-equipment companies are also factors for many telecom companies, namely Asia (pricing pressure) and Asia (demand weakness). Thirteen telecom equipment companies had earnings warnings in Q1, and six of these specifically mentioned Asia as a factor.
Telecoms equipment and services are therefore the answer with a lower case a. This will be a winning sector in coming years, but many companies are at substantial risk of missing estimates over the near term due to Asia. The best approach to this sector is to draw up two lists, a near-term buy list for companies with insignificant Asian exposure, and a future buy list for good companies that face substantial near term challenges related to Asia.
In addition to looking for some protection from Asia, we also look for a diverse product line. You can hit some home runs in the telecom sector with niche players, but you will be a Dave Kingman-type hitter -- a lot more strike-outs than HRs. The diversified players offer much less risk but still hold huge upside potential. We'll break them down into equipment and services. First, equipment.
Lucent (LU): You saw the chart above -- this is the great company in the great industry. Great management, diverse product line, and not much Asian exposure.
Cisco (CSCO): Call them a networker, call them a telecom equipment company, call them whatever you want, but also call them a beneficiary of the bandwidth revolution, a company led by a CEO (John Chambers) who is one of the best, and a company that will never fall behind the technology curve (what they don't have, they'll buy).
Tellabs (TLAB): Not as well known as LU and CSCO, but here's a company with a dominant position in the digital cross-connect market and huge upside potential in the voice/data over Cable TV market and, best of all, no Asian exposure.
Nortel (NT): We'd pick the other three first, but here is another diversified telecom equipment pick with little Asian exposure.
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