Networking Growth Takes Another Hit on Weisel Call
By Scott Moritz
Senior Writer [TSCM]
12/18/00 7:19 PM ET
A top communications networking industry scout returned from the spending front with some very chilling news, but his firm, Thomas Weisel Partners, remains bullish on the optical sector.
A report expected to be released Tuesday projects equipment spending will rise a paltry 2.6% next year, a dramatic but not surprising pullback from the 28% growth in 2000. Despite the gloomy outlook, Weisel analysts told investors on a conference call Monday that optical growth would continue to accelerate by 42%, assuming phone and Internet service providers would buy the "right" stuff.
Investors, already leery of tech stocks amid a creeping economic slowdown, punished the networking stocks to the tune of 10%-20% Monday, as growth projections continue to contract.
Purity
Companies such as Sycamore (SCMR:Nasdaq - news), ONI (ONIS:Nasdaq - news) and Corvis (CORV:Nasdaq - news), which make the transport and switching gear to operate fiber optic networks, are what Weisel's equipment analyst Max Schuetz calls the pure plays in the next-generation networking sector. (Schuetz has no rating on ONI, a strong buy on Sycamore and a buy on Corvis. Weisel was an underwriter for Sycamore's secondary offering earlier this year.)
The Weisel analysts said the larger equipment suppliers such as Lucent (LU:NYSE - news) and Nortel (NT:Nortel - news) would be more exposed to spending downturns because they sell a broader range of equipment. Cisco (CSCO:Nasdaq - news), says Weisel's Mark Edelen, gives some reason to be cautious because of its "exposure to a weak carrier base." Cisco sells gear to telco start-ups, the type of companies that are finding little funding support these days.
The report is based on a survey of 156 phone and Internet service companies worldwide in the past six weeks. It was conducted by Hasan Imam, who was previously with Wall Street heavy Credit Suisse First Boston. Imam says that total spending next year will be $244 billion, compared to $236 billion in 2000. And optical spending, says Imam, will grow to $16.2 billion from $11.5 billion from this year.
Weisel's report signifies how the spending slowdown is coming into better focus. In October, industry researcher RHK projected that North American equipment-buying growth would rise only 21% in 2001, a big comedown from the 38% growth this year. RHK puts 2001 optical spending growth at 40%, down from 2000's 62%.
Skepticism
That Weisel could put any positive spin on a negative forecast is either a show of faith or an act of bravery akin to Custer's showing at Little Big Horn, say investors, who have adopted a skeptical outlook for networking stocks.
Paul Meeks, technology fund manager for Merrill Lynch, says he has recently beaten his own retreat from telecom-equipment companies out of fear of the potential massacre ahead. Meeks counts Ciena as his only optical holding at this point, and says cash, storage stocks and Web software are where the bulk of his positions are these days.
"The arrow is pointing downward in 2001," says Meeks. "I don't think there is any way you can say these forecasts are wrong and that 2001 is going to be a pretty robust year." |
