What's With AT&T's Capex Dip?
Is AT&T slowing down its capital spending, or is it just "truing up"?
In a research note issued this morning, George Notter, managing director of communications infrastructure equity research at Jefferies & Company Inc. , wrote that AT&T Inc. (NYSE: T) was observed by some vendors to have slowed down its capital spending in early or mid-April. "This commentary has been quite uniform among our industry contacts that do business on the Wireline side of AT&T's capital budget," the note said. "Now, our contacts -- broadly -- are experiencing shipment/revenue declines on the order of 50-65% relative to the month of March."
If that's the case, a number of vendors -- Ciena Corp. (NYSE: CIEN), Juniper Networks Inc. (NYSE: JNPR), Adtran Inc. (Nasdaq: ADTN), Finisar Corp. (Nasdaq: FNSR), JDSU (Nasdaq: JDSU; Toronto: JDU), andAlcatel-Lucent (NYSE: ALU) among them -- could be affected. Ciena is due to report quarterly earnings this Thursday, so its call with analysts that day will bear close listening for any related commentary.
However, there are other possible explanations for the apparent decline. Notter wrote that a couple of his contacts have heard information suggesting that AT&T's spending could pick up again by next month, in which case the company simply might be "truing up" its spending in accordance with its full-year capex plan.
There also has been a perception that changes in AT&T's spending patterns could have something to do with its Supplier Domain 2.0 program. The carrier recently added more vendors to that program, and though its didn't change capex guidance, AT&T has suggested the cloud-related program "could reflect a downward bias" toward capex in the years to come. (See AT&T Adds Amdocs, Juniper to Cloud Roster.)
Notter's finding contrasts with the observation this year by the Raymond James Financial Inc. (NYSE: RJF) research team that AT&T might be spending its capital budget this year in a more linear, less seasonal fashion than it traditionally has. The team found that AT&T spent 27% of its full-year capex budget during the first quarter, counter to the traditional average of about 21%. (See Capex Trend Points to Less Seasonality Analysts.)
AT&T knows which explanation is the right one, but it isn't saying. The telco has been strangely quiet with the vendor community about the recent spending dip.
Dan O'Shea, Managing Editor, Light Reading