A slightly more positive spin on the WSJ article.
************************
11:15 ET ******
Telecoms : The sector's woes continue today, as the market increasingly focusses on the possibility that troubles in the services sector will translate into troubles in the equipment sector. The Wall St Journal's Heard on the Street column highlighted this risk today, and JP Morgan initiated some service providers with some cautionary comments today (though not nearly as negative as portrayed on CNBC). These negative stories follow a string of bad news from the telecom service sector: Ciena (CIEN) had to write off a receivable from a failing European provider, MPower (MPWR) warned about Q3/Q4 revenues, and privately held Broadview pulled its IPO filing. Though it is tempting to write off this morning's reports as a hindsight response to recent bad news, the truth is more complicated than that. From a very broad perspective, it is true that problems for service providers will translate into problems for equipment companies. But not many people are buying and selling baskets of stocks labelled telecom services or telecom equipment. Within that broad story are many widely divergent sub-stories. The JP Morgan call actually highlights that divergence, though you wouldn't know it on the basis of media reports. JP Morgan initiated the large cap wireline services group with an "underweight." This sector includes companies such as AT&T (T), Sprint (FON), and Worldcom (WCOM). The key argument behind this cautious view was that long distance voice revenue growth was likely to turn negative instead of being just flat. But when you look at the hottest telecom equipment companies, they are not focussing on the long distance voice market. It's data traffic and wireless that are driving the valuations in this group, and JP Morgan had good things to say about these market segments. Equipment companies that have the greatest exposure to the long distance voice business have suffered already -- Lucent (LU) and Tellabs (TLAB) are examples of companies that have underperformed. But the Journal article mentioned companies such as Juniper (JNPR) and Cisco (CSCO), which little or no exposure to the voice business. As is customary in the mainstream press, they used too broad a brush to paint a very detailed picture. There are valid concerns about valuations in the equipment sector, and the less receptive IPO market for emerging service providers is also a concern for the gear companies. But it is important not to view the telecom sector as a monolith. There is massive technological disruption occurring in telecoms, which means that we will see some businesses implode (voice services and equipment) even as other businesses explode (data, wireless). - Greg Jones, Briefing.com |
