More Stalled Spending Marks Static Cable-Equipment 1Q
By Brian Steinberg
NEW YORK (Dow Jones)--They said good times waited around the corner. They said prosperity lay just months or weeks away.
Apparently, they were wrong.
Investors interested in a familiar, more-than-thrice-told tale may enjoy viewing the cable-equipment sector in the current quarter. Continued reliance on spending from large cable operators, particularly Tele-Communications Inc.'s TCI Group (TCOMA), has created a sluggish market in the U.S. Still, analysts believe certain conditions in the second half of 1998 and 1999 bode well for the torpid industry.
"Most of the companies have a shot at making their numbers," said Nikos Theodosopoulos, an analyst with UBS Securities Inc. "But it's not a done deal."
"We think TCI will really start spending on these upgrades," Theodosopoulos added. "We're also starting to get some initial feedback on how (Digital TV and cable modems) are being rolled out."
And yet, in previous quarters, analysts predicted increased spending by large cable operators would start by this time. Now, they are looking for small but meaningful upticks.
"I'm as big a TCI skeptic as anybody, but they are at the point now where the rubber meets the road," said Michael W. Harris, president of Kinetic Strategies Inc., a cable and Internet research firm in Phoenix. "They've cleaned up their balance sheet and the stock is flying again."
Cable spending "is starting to improve," said Theodosopoulos. Increased orders from TCI are also more visible, he said. "We may not see it this quarter, but the orders, I think, will suggest we're starting to make a little turn for the better," Theodosopoulos said. "But it's more of a gradual improvement than any quantum leap."
On the international front, however, the sector will remain sluggish for now, Theodosopoulos said, citing weakness in Asia and the United Kingdom.
Scientific-Atlanta Inc. (SFA) and General Instrument Corp. (GIC), two large providers of set-top boxes, stand to do well as new technology develops. "Right now, those are the two leaders in digital," UBS Securities' Theodosopoulos said. "It could change, but it's the situation in the U.S. If digital services sell well, those companies could do well."
A First Call Corp. survey of 15 analysts expects Norcross, Ga.-based Scientific-Atlanta to post earnings of 21 cents a share in its fiscal third quarter, against year-ago earnings of 21 cents a share on sales of $301 million.
The same number of analysts expects General Instrument, which recently switched its name from NextLevel Systems, to report earnings of 11 cents a share, against results of 13 cents a share on $641.3 million in the year-ago period.
In Scientific-Atlanta's second quarter, the company reported earnings 5 cents below a First Call estimate, citing weakness in its Asian markets. Accordingly, its stock dipped. However, it has since rebounded. The shares recently were down 1/16, or 0.3%, at 19 9/16 on volume of 143,000 shares. Average daily volume is 754,800. The shares hit a 52-week low of 14 Jan. 23.
As for Antec Corp. (ANTC), the Rolling Meadows, Ill., equipment supplier and developer, five analysts expect a first-quarter loss of 1 cent. In the year-ago period, Antec reported a loss of 42 cents on sales of about $120 million.
Analysts expect Harmonic Lightwaves Inc. (HLIT), of Sunnyvale, Calif., to report a loss of 3 cents a share. In the year-ago period, the company reported earnings of 18 cents a share on sales of $19 million.
Amphenol Corp. (APH), the Wallingford, Conn., maker of fiber-optic connectors, is expected by a consensus of five analysts to report first-quarter earnings of 54 cents a share. In the year-ago quarter, the company posted earnings of 39 cents a share on sales of about $211.8 million.
Meanwhile, a consensus of seven analysts expects a loss of 11 cents a share from Ortel Corp. (ORTL), of Alhambra, Calif. In the year-ago period, the company posted earnings of 12 cents a share on revenue of $19.7 million.
According to Kinetic Strategies' Harris, waiting for TCI may well be the only option available for the cable-equipment firms. "A lot of the major operators are already far along in their upgrades," Harris said. "TCI was the laggard. There is money to be had over the next three years from TCI." |
