Follow the end customers... I keep repeating this, but when Capex increases, guess who it filters down to...
RBOC CAP-EX CREEP CONTINUES
KEY POINTS
* Three RBOCs are further raising their 1999 cap-ex estimates:
* On Friday, US West increased capex plans for the second time to $4B from
$3.5-3.8B. The latest increase represents 25% increase from its original
plans at the beginning of the year, adjusted for software capitalization.
* Bell Atlantic indicated its intent to further increase capex and will
review the items at a breakfast meeting this Wednesday. The first
increase, representing a 7% increase, was announced just five months ago.
* SBC will likely add $2-2.5B of cap ex to its current budget over the next
few years for the accelerated broadband deployment.
* This supports our industry call on the impact of increased network usage and
new revenue generating services driving robust operator spending and
subsequently strong revenue growth for telecom equipment manufacturers.
* We believe Lucent (LU (1)-$67), our Analyst Best Call, and Nortel (NT-$86)
are the primary beneficiaries of increasing capex in North America. Nortel
is expected to report its Q2 results tomorrow after the market close; our EPS
estimate are $0.51, a penny above the consensus estimate of $0.50.
CAPITAL CREEP CONTINUES
Less than a year ago several of our competitors had been fanning the flames of
fear that cap-ex from Regional Bells would fall off in 1999. This has become a
typical year-end concern of telecom equipment investors, intensified by the
weak global markets in 1998. At that time, we published stated cap-ex plans of
United States telecom providers and our estimates of where they would end up by
year-end 1999. Our estimates were obviously higher than the stated plans of the
companies. Since that time Ameritech, AT&T, Bell Atlantic, Sprint PCS, US
West, Western Wireless, NEXTLINK, MCI Worldcom and now SBC have raised their
1999 cap-ex estimates beyond our estimates. We expect cap-ex plans to continue
to increase throughout 1999.
RBOCS AGAIN INCREASE CAPEX
RBOCs were among the first operators to increase their 1999 capital expenditure
plans, responding to surging growth in traffic (both wireless and wireline) and
investing in broadband access systems. Today, we are reporting increases in
1999 capital spending programs of three RBOCs, two of which have already
increased their plans earlier in the year.
* SBC, a name we have not yet seen announce a capex increase, is likely to add
$2-2.5 billion to its current capital spending budget over the next few years
as it accelerates broadband deployment. The company's current guidance for
1999 capex is $6.2 billion.
* Bell Atlantic has indicated that it would further increase its 1999 cap-ex
plans after a $500 million increase to $7.5 billion five months ago. The
company will provide further details of the increased budget at its breakfast
meeting on Wednesday, July 28.
* US West announced another increase in 1999 capital spending to $4 billion up
from $3.5-3.8 billion ($2.8 billion at the beginning of the year). To date,
the company has increased its original budget by $800 million or 25%,
excluding $300-400 million on capitalization of previously expensed software |
