| Briefing.com Networking Sector : In our last update on the networking sector, Briefing.com expressed reserve over the near-term prospects for networkers. We continue to believe the sector carries near-term risk, although the longer-term outlook is becoming more attractive. As we have been noting for months, capital spending by telecom carriers has fallen off dramatically, and the decline has affected many networkers. Yet with recent developments in the political arena, the industry most likely faces improved longer-term growth dynamics. Spending is expected to increase in areas such as disaster recovery, VPN/security, remote access, video conferencing, and wireless infrastructure. In addition, enterprise-focused networkers such as Extreme (EXTR) and Foundry (FDRY) have already begun to show signs of stabilization in their recent operating results and subsequent forward projections. On a sector-wide basis, industry data is somewhat mixed. U.S. carrier capex looks set to decline by as much as 30% from 2001 to 2002. Yet at the same time, U.S. carriers' purchases of telecom and networking equipment is expected to fall by a significantly smaller margin -- about 5% to 10% this year after a staggering 42% drop from 2000 to 2001. The positive side of these dynamics is that the industry should be insulated from any further screaming slides lower. Yet the capex cuts could limit the scope of any industry upturn reducing the quality of the group's recovery. All in all, this means we have potential limitations to the sector's downside as well as its upside. While near-term concerns regarding earnings visibility cause us to be somewhat cautious, we believe the investor with a longer-term time horizon will want to have an eye on the group's leaders. We are maintaining our rating on the group at Market Perform. -- Mike Ashbaugh, Briefing.com |
