& cplSiteName &

Capex Trend Points to Less Seasonality – Analysts

Dan O'Shea
5/2/2014
100%
0%

Could carrier capital spending become less seasonal and more linear from quarter to quarter in the future?

The communications equipment research team at Raymond James & Assoc. believes that this could happen over time, and that there may already be evidence that it happened to some degree during the first quarter of 2014.

In a research note, Raymond James analysts say AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) in particular reported first-quarter capex above typically observed industry patterns. AT&T spent about 27% of its full-year forecast capex in Q1, and Verizon spent almost 25%, while patterns observed over several years suggest carriers usually spend around 21% of their annual capex forecast during the first quarter, with the second, third and fourth quarters playing out at around 25%, 25% and 29%, respectively.

"We are left suspecting that AT&T and Verizon might spend above the midpoint of their forecasts; whereas, typically, operators underspend capex forecasts," the note states. "Furthermore, we believe carriers intend to reduce seasonality going forward and will strive for more linear patterns in the coming years."

The first-quarter capex upswing did not carry through the entire carrier sector. For example, Sprint Corp. (NYSE: S) and T-Mobile US Inc. maintained forecast spending patterns for the quarter, the analysts say. However, as the two biggest carriers in the US, AT&T and Verizon wield the most influence on any shifts in capex trends.

The long-term effect of this possible new trend on equipment vendors in not so clear. Blaming "seasonality" for tepid first-quarter results is about as regular occurrence as, well, the change of seasons, in the vendor sector, and any signs of more linear spending don't appear to have altered the first-quarter vendor earnings reports we have seen thus far. Also, because neither AT&T nor Verizon have changed their full-year capex forecast as of yet, vendors that rigidly set their expectations by typical seasonal trends could face "downside risk" if quarterly spending proves to be more linear throughout this year.

Of vendors with some exposure to AT&T's and Verizon's spending trends, the Raymond James team notes that Juniper Networks Inc. (NYSE: JNPR), Adtran Inc. (Nasdaq: ADTN), and Ericsson AB (Nasdaq: ERIC) didn't report a direct effect from the trend, though it appears that CommScope Inc. did. It may be worth noting that Juniper and Infinera Corp. (Nasdaq: INFN), the latter of which doesn't have large exposure to the Big Two carriers, both did report increasing service provider spending overall during the first quarter that seemed to defy the usual Q1 doldrums. (See Juniper Rides Service Provider Revenue Growth and Infinera Confirms Level 3 Deal.)

— Dan O'Shea, Managing Editor, Light Reading

(4)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
BRN
50%
50%
BRN,
User Rank: Light Beer
5/3/2014 | 11:37:57 AM
Re: Seasonality of CapEx spend
In Telecom, the established firms spend isn't impacted much by the actual seasons.  The first calendar quarter is traditionally low due to new budgets coming out, focus by the internal financial teams closing the previous year and scrutiny on results before launching into tremendous spend.  Couple that with the vendor lead times after filling a usually higher Q4 (as noted approx 29%) for their customers and there you have it. 

 
Mitch Wagner
50%
50%
Mitch Wagner,
User Rank: Lightning
5/2/2014 | 3:58:18 PM
Re: Capex unaffected by a harsh winter?
Any reason why capex spending is reducing seasonality?

For that matter, why is it seasonal at all -- other than, as Dan noted, weather, which is a big deal in most of the country. 
Phil_Britt
50%
50%
Phil_Britt,
User Rank: Light Sabre
5/2/2014 | 3:43:40 PM
Re: Capex unaffected by a harsh winter?
I would think that the harsh winter had an impact -- most areas of the country were affected in one way or another, not just one region. So choosing to work in better climates wasn't really an option.
DanJones
50%
50%
DanJones,
User Rank: Blogger
5/2/2014 | 12:23:49 PM
Capex unaffected by a harsh winter?
It makes me wonder if capex could have been up even more if not for the godawful winter in the US this year?

For instance, housing starts in the US were down 5.9% year-on-year in Q1 in part because of the snow and the polar vortex weather.

I suppose national carriers might have a bit more flexibility in what part of the country they work over the year compared to the more local building trade.
From The Founder
The independent evaluation of Nokia's key virtual network functions (VNFs) was a defining moment for the Finnish giant.
Flash Poll
Live Streaming Video
The Real-World View of Service Provider Innovation
Executives from Deutsch Telekom, Facebook, AT&T, Vodafone, and Masergy share insights from their company’s major transformation efforts and updates on key issues including open source, managed cloud connections and 5G.
LRTV Documentaries
Light Reading Hall of Fame 2016

5|23|16   |   05:43   |   (0) comments


Find out who has been welcomed into Light Reading's Hall of Fame this year.
LRTV Custom TV
ZTE TM Forum Highlights

5|23|16   |     |   (0) comments


ZTE showcased its new ICT solutions at TM Forum in Nice.
LRTV Interviews
Gamma's MD on the Emergence of UC2

5|20|16   |     |   (0) comments


Gamma Communications Managing Director David Macfarlane believes the unified communications (UC) market has reached a tipping point.
LRTV Custom TV
The Ultimate 5-Minute Guide to Digital Customer Engagement

5|20|16   |     |   (0) comments


In this short video, you will hear all about how Digital Customer Engagement is the key to meeting customer expectations, keeping them happy, and maximizing revenue. VP Product & Marketing at Pontis, Ofer Razon, breaks down for us the five essential capabilities for successful Digital Customer Engagement. Don’t miss!
LRTV Custom TV
NFV in 2016: Part 1 – NFV Use Cases Get Real

5|19|16   |   05:57   |   (0) comments


Consensus is building around the key use cases for NFV, including managed IP services at the network edge and on customer premises, which can generate new revenues from enterprises/SMBs and consumers; Evolved Packet Core to support LTE migration; and adjacent technologies, such as TAS and IMS, to support VoLTE and next-generation charging and policy control ...
LRTV Custom TV
Nokia's Steve Vogelsang on NFV – Part 3

5|19|16   |     |   (0) comments


Steve Vogelsang discusses the challenges of operational transformation and how Nokia helps its customers. Join Steve at the Big Communications Event in Austin the morning of May 24, on his keynote and optical networking panel.
LRTV Interviews
Level 3: Why UC Is In Demand

5|17|16   |   04:12   |   (1) comment


Andrew Edison, Level 3's senior VP of sales, EMEA region, talks about the drivers of growth in the unified communications services market.
LRTV Custom TV
ARM's OPNFV Action

5|17|16   |     |   (0) comments


At the ARM booth at MWC 2016, Joe Kidder and Bob Monkman speak to Light Reading about OPNFV and their upcoming action.
LRTV Custom TV
Nokia's Steve Vogelsang on NFV – Part 2

5|16|16   |     |   (0) comments


Steve Vogelsang gives advice to service providers on how to move to NFV. Join Steve at the Big Communications Event in Austin the morning of May 24, on his keynote and optical networking panel.
LRTV Interviews
Interoute CTO on NFV's Maturity

5|13|16   |   06:46   |   (1) comment


Matt Finnie, CTO at international operator Interoute, explains how NFV has made life easier in terms of logistics and how Interoute can now enable a 'software-defined moment' for its customers.
LRTV Huawei Video Resource Center
UBBS 2016 Highlights

5|12|16   |     |   (0) comments


Highlights of Huawei's UBBS event in Hong Kong.
LRTV Huawei Video Resource Center
European 2020 Digital Agenda

5|12|16   |     |   (0) comments


Anacom's Fatima Barros discusses the plan to bring ultrafast broadband to Portugal by 2020.
Upcoming Live Events
September 13-14, 2016, The Curtis Hotel, Denver, CO
December 6-8, 2016,
June 16-18, 2017, Austin Convention Center, Austin, TX
All Upcoming Live Events
Infographics
A new survey conducted by Heavy Reading and TM Forum shows that CSPs around the world see the move to digital operations as a necessary part of their overall virtualization strategies.
Hot Topics
WiCipedia: Short Skirts & Back-Up Plans
Eryn Leavens, Special Features & Copy Editor, 5/20/2016
Nokia Plays It Smart With Major Mobile Devices Brand Deal
Iain Morris, News Editor, 5/18/2016
AT&T Plots Mobile 5G Tests in 2017
Dan Jones, Mobile Editor, 5/18/2016
Ingenu Revs Up IoT Rhetoric
Iain Morris, News Editor, 5/18/2016
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
In this latest installment of the CEO Chat series, Craig Labovitz, co-founder and CEO of Deepfield, sits down with Light Reading's Steve Saunders in Light Reading's New York City office to discuss how Deepfield fits in with the big data trend and more.
Grant van Rooyen, president and CEO of Cologix, sits down with Steve Saunders, founder and CEO of Light Reading, in the vendor's New Jersey facility to offer an inside look at the company's success story and discuss the importance of security in the telecom industry.
Animals with Phones
Live Digital Audio

Our world has evolved through innovation from the Industrial Revolution of the 1740s to the information age, and it is now entering the Fourth Industrial Revolution, driven by technology. Technology is driving a paradigm shift in the way digital solutions deliver a connected world, changing the way we live, communicate and provide solutions. It can have a powerful impact on how we tackle some of the world’s most pressing problems. In this radio show, Caroline Dowling, President of Communications Infrastructure & Enterprise Computing at Flex, will join Women in Comms Director Sarah Thomas to discuss the impact technology has on society and how it can be a game-changer across the globe; improving lives and creating a smarter world. Dowling, a Cork, Ireland, native and graduate of Harvard Business School's Advanced Management Program, will also discuss her experience managing an international team focused on innovation in an age of high-speed change.