Capex from briefing. yada yada yada
Telecom Capex : We have remained negative on the telecom equipment sector, and this week's news on carrier capital spending plans has justified our cautious view. In the past week, four major telecom carriers have come out with disappointing capex news, and have added to the telecom equipment sector's woes by noting that it is now a buyer's market for equipment.
The numbers:
Sprint (FON): company "reassessing" capex plans; annualized Q1 spending pace was $1.7 bln below company's full year guidance of $6.2 bln.
SBC (SBC): cut plans to $12.0 bln from $12.5 bln.
Qwest (Q): cut plans to $9.2 bln from $9.5 bln.
Verizon (VZ): cut plans to $17.5 bln from $18.5 bln.
Total cuts: $3.5 bln, assuming Sprint's Q1 spending pace continues through the year.
Implications:
It is no longer news that emerging carriers are dramatically cutting capex plans or, in some cases, simply going out of business. But the fact that capex plans of the incumbents are still falling is not a good indication for the telecom equipment market.
Prior cuts in capex plans were due solely to the weaker economy and capital constraints. In the Qwest and Verizon calls, we heard something new: budgets were coming down in part because pricing was more favorable -- carriers are getting the same amount of equipment that they previously desired, but at lower prices
Bottom line: As we noted yesterday, there has been too much focus on inventory levels at telecom equipment, optical components, and comm IC companies. Reducing inventories is a good thing, but increasing end-user demand is the key to a sustained rebound. Unfortunately for the suppliers, we are seeing the opposite -- continued declines in end-user demand. And importantly, we are seeing a second problem -- increasing pricing pressure. As Verizon's CEO ominously put it, we are "really pressing all our vendors." - Greg Jones, Briefing.com |
