DJ Optical Cos Drop -3: Street Awaits Telco Spending Uptick
30 May 13:19
Last week, ADC Telecommunications Inc. (ADCT) sent a clear signal to Wall
Street that demand for fiber optic and broadband connectivity products is not
expected to see a quick uptick.
The company substantially lowered sales guidance for its ongoing fiscal third
quarter and upcoming fourth quarter.
UBS Warburg telecommunications equipment analyst Nikos Theodosopoulos noted
as much in a morning note Wednesday on Tellabs.
"We continue to believe that capital spending on telecom equipment has not
improved in general for the industry," he wrote, before adding that Tellabs is
stuck in a trading range given the overhang of lowered carrier spending and
uncertainty about the revenue ramp from new products.
The recession in telecommunications spending this year is nothing new. As
early as the fall of last year, there were signs that North American carriers
would spend less this year than in 2000. The spending crunch has been
exacerbated by the lack of capital available to startup phone companies, many
of which have cut spending plans as they seek new funding. Some have recently
declared bankruptcy. As a result, the continent's largest service providers no
longer face as much competition for customers, and therefore aren't spending as
much to protect their subscriber base.
The estimated length of the spending recession is still under debate. When
fiber optic companies like Corning Inc. (GLW) and JDS Uniphase and Nortel first
began lowering estimates for the year, the general impression was spending
would rebound in the second half of the year.
There are no signs yet that will happen. Most large carriers are sticking to
the spending plans they outlined early this year, or have trimmed them
modestly. But there is also increasing concern that carriers may not meet those
estimates. Some analysts have said carrier spending patterns so far this year
suggest the carriers are not spending at a high enough trajectory to meet their
year-end targets.
Martin Pyykkonen, telecommunications analyst with C.E. Unterberg Towbin, said
in a Wednesday note initiating coverage of Nortel at buy that the potential for
consolidation among carriers could create disruption and (spending)
rationalization in the near to intermediate term.
However, he noted that the key variable is fundamental industry demand for
units of capacity.
"(Nortel) management said recently that discussions with their top-ten
service providers suggest they utilize 70% to 85% of designed optical transport
capacity," Pyykkonen wrote. "Remembering that service providers rarely utilize
more than 90% of capacity, this should presage a boost in fundamental demand
for Nortel and other optical systems suppliers' products."
Few companies have been as hard hit by the slowing economy recently as fiber
optic concerns. Their stocks rocketed early last year and proved fairly
resilient even as the high-tech sector fell off throughout 2000. But following
multiple warnings by Nortel, JDS Uniphase and Corning, the sector has been
battered.
Shares of Corning were recently off $1.45, or 7%, to $19.22, with volume at
6.8 million, compared with the daily average of 13.4 million. Component makers
New Focus Inc. (NUFO) and Finisar Corp. (FNSR) were down almost 13% and 11%,
respectively. Optical switch maker Corvis Corp. (CORV) recently dropped 35
cents, or 5.5%, to $6.
-By Johnathan Burns, Dow Jones Newswires; 201-938-2020;
johnathan.burns@dowjones.com
(END) DOW JONES NEWS 05-30-01
01:19 PM |
