Overall I would just avoid LU for now. It is so low down in price that is not worth shorting. On the other side it is seeing improved margins and still seeing growth in wireless. It is also seeing some traction in optical, which not many companies can say right now. The fact that it got the convertible done so quickly after the earnings warning indicates to me that they don't see conditions improving much near term. Otherwise I think they would have waited till conditions were better in order to get better terms on the convertible. So umless you see a lawsuit in the next few week from the bond holder over LU not revealing all material facts I expect telecom spend to be quite a bit weaker than expected.
Given current conditions, I would not expect anyone to take more aggresive positions in telecom equipment stock till closer to Sept. Then they will be looking for sign of the predicted turn around.
LU wirelesss strength has been in GSM networks which is strange as NOK has indicated weakness in network infrastructure. Note that NOK has no exposure in N. Amer to this segment. It is all in Europe, Latin Amer. and the Far East.
NOK also indicated handset sales are on track. They are introducing new models. 3G rev have not been booked yet, but they are doing these types of infrastructure contracts. No forward guidance on handset sales. Seeing reduced inventory in the channels. Overall, not that bad a call.
CMVT press release appears to indicate weakness in adding messaging service. Given carriers are focusing on profitable services, what does that say about next generation handset that focus on text messaging?
Overall I would focus on smaller companies than LU in anticipation of a cap ex turn around.
Long side
Wireline:
JNPR still has lots of institutional support and 1 billion in cash. Despite it high price to sales ratio, it has been a leader in re-bounds in the sector.
ONIS for good metro traction. It is acting better than CIEN for some reason. Potential T contract that will ramp demand quickly. Potentila ramp was cited as one of the reasons for the merger with CIEN.
GSPN for ADSL.
ADTN for T1/T3 line growth and good cash flow,
TELM: niche segment has been abandoned by NT and TLAB, leaves it as only nect gen SONET switch provider, enough money to survive down turn, no debt, reduced burn rate
TXCC: In anticipation that T1/T3 growth will lead any busines recovery as that is where the money is for carriers
Wireless:
WFII : Infrastructure build out
RFMD: handset amplifiers, wireless LAN's
NOK: Dominant handset position
QCOM: everyone has to pay them for CMDA technology, key technology to 3G deployment
Most everything else is a short or an avoid. |
