Light Reading

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
Light Reading sits down at CES with the head of Cisco's service provider video business, Conrad Clemson, to discuss how NFV and cloud security relate to video, the challenge of managing 4K/8K traffic, the global expansion of Netflix and virtual reality.
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
LRTV Custom TV
Hosting in Ireland, Past & Present

2|10|16   |   16:07   |   (0) comments


Garry Connolly, president of Host in Ireland, presents the keynote at Light Reading's 2020 Vision Executive Summit in Dublin.
LRTV Interviews
What's Hot in Mobile Commerce?

2|10|16   |   12:18   |   (1) comment


Claire Maslen, financial services relationship manager at the GSMA, talks about the development of the digital commerce sector and the types of relationships that mobile operators are developing to further their m-commerce strategies.
LRTV Documentaries
EANTC Tests Nokia IP Routing & Mobile Gateway VNFs for Real World Deployment

2|9|16   |   5:08   |   (0) comments


Nokia obtained validation of its virtualized router and virtualized mobile gateway capabilities through rigorous testing performed by EANTC. The results set a new industry benchmark for outstanding performance, scalability, resiliency and manageability. Nokia VNFs are ready for telco cloud deployment, so that service providers can accelerate mobile, business and ...
Between the CEOs
CEO Chat With Level 3's Jack Waters

2|8|16   |   26:15   |   (1) comment


Light Reading CEO and founder Steve Saunders sits down with Level 3 Communications' CTO Jack Waters to discuss hot topics like virtualization, 4K and the future of telecom...
LRTV Custom TV
The Composable Telco

2|8|16   |   24:46   |   (0) comments


Heavy Reading's Principal Analyst Caroline Chappell presents the keynote at Light Reading's 2020 Vision Executive Summit in Dublin.
LRTV Custom TV
Join Us at the Digital Operations Transformation Summit

2|4|16   |   03:52   |   (0) comments


The Digital Operations Transformation Summit on February 21, 2016 at the Crowne Plaza Barcelona Fira Centre will bring together 50 senior executives to engage in a unique debate on the opportunities and challenges presented by the transformative evolving digital landscape. RSVP now at events@lightreading.com.
LRTV Custom TV
Making the Test: ADVA Ensemble Connector vs. Open vSwitch

2|4|16   |   01:28   |   (0) comments


Light Reading, in partnership with EANTC, recently tested ADVA's Ensemble Connector, which replaces open vSwitch and offers carrier-grade capability and interoperability. The test results strengthen ADVA's credibility as a provider in the virtualization space.
LRTV Custom TV
Bridging the Gap Between PoCs & Deployment in NFV

2|4|16   |   31:50   |   (0) comments


Charlie Ashton of Wind River presents the keynote at Light Reading's 2020 Vision executive summit in Dublin.
Between the CEOs
CEO Chat With Mike Aquino

2|3|16   |   17:34   |   (0) comments


The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
Shades of Ray
MWC: Buckle Up for 5G & the IIoT

2|2|16   |   02:28   |   (0) comments


This year's Mobile World Congress looks set to be a 5G land grab and a chance to get down and dirty with the Industrial Internet of Things (IIoT) – but what will the 5G discussions actually be about?
LRTV Custom TV
Case Study: Building China's Next-Gen TV Networks

2|2|16   |   5:01   |   (0) comments


With over 2 billion viewers worldwide, Shenzhen Media Group is one of China's largest content producers. By partnering with Huawei and Sobey, SZMG was able to modernize media operations with the Converged News Center, a production studio that is a model for next-generation workflows.
LRTV Custom TV
Quad Channel Modulator Driver with 46 Gbaud Capability from MACOM

1|28|16   |     |   (0) comments


MACOM's MAOM-003427 is the industry's first surface-mount modulator driver with 46 Gbaud capability to support next generation 200G and 400G applications.
Upcoming Live Events
March 10, 2016, The Cable Center, Denver, CO
April 5, 2016, The Ritz Carlton, Charlotte, NC
May 23, 2016, Austin, TX
May 24-25, 2016, Austin Convention Center, Austin, TX
All Upcoming Live Events
Hot Topics
Google's 5G Radio Ambitions Are Expanding
Dan Jones, Mobile Editor, 2/5/2016
Yahoo & Verizon Sitting in a Tree...
Brian Santo, Senior editor, Test & Measurement / Components, Light Reading, 2/8/2016
Cincinnati Bell Joins Weight Watchers Club
Alan Breznick, Cable/Video Practice Leader, 2/5/2016
Vodafone: Flexible Work Policies Boost Profits
Sarah Thomas, Editorial Operations Director, 2/8/2016
It's Time to Integrate OTT Video
Alan Breznick, Cable/Video Practice Leader, 2/8/2016
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
Light Reading CEO and founder Steve Saunders sits down with Level 3 Communications' CTO Jack Waters to discuss hot topics like virtualization, 4K and the future of telecom...
The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
Animals with Phones
Retro Is the Way to Be Click Here
Some animals are too cute for smartphones.
Live Digital Audio

Broadband speeds are ramping up across Europe as the continent, at its own pace, follows North America towards a gigabit society. But there are many steps to take on the road to gigabit broadband availability and a number of technology options that can meet the various requirements of Europe’s high-speed fixed broadband network operators. During this radio show we will look at some of the catalysts for broadband network investments and examine the menu of technology options on offer, including vectoring and G.fast for copper plant evolution and the various deployment possibilities for FTTH/B.