& 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.
Light Reading’s Upskill U is a FREE, interactive, online educational resource that delivers must-have education on themes that relate to the overall business transformation taking place in the communications industry.
NEXT COURSE
Friday, September 30, 1:00PM EDT
Gigabit & the Great Migration
Robert Howald, Vice President, Network Architecture, Comcast
UPCOMING COURSE SCHEDULE
Wednesday, October 5, 1:00PM EDT
Gigabit & Smart Cities
Joe Kochan, COO & Co-Founder, US Ignite
Friday, October 7, 1:00PM EDT
Gigabit & DOCSIS 3.1
Ty Pearman, Director, Access Architecture, Comcast
Wednesday, October 19, 1:00PM EDT
Securing a Virtual World
Rita Marty, Executive Director, Mobility and Cloud Security, Chief Security Office, AT&T
in association with:
From The Founder
Light Reading today starts a new voyage as part of a larger Enterprise.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
LRTV Interviews
CenturyLink: SDN/NFV Pose New Interconnection Possibilities

9|28|16   |   04:37   |   (0) comments


Network operators should develop new APIs and business processes for reselling virtual assets to each other, says CenturyLink's Bill Walker. That will enable them to build digital business portfolios that help them avoid becoming commodity transport providers.
LRTV Interviews
Level 3: Overcoming Terror of Being Supplier, Integrator & Developer

9|28|16   |     |   (0) comments


At Light Reading's NFV & Carrier SDN event in Denver, Travis Ewert of Level 3 Communications said there is terror in becoming supplier, integrator and developer, but it can be overcome and be cost effective.
LRTV Custom TV
Introducing IoT World News

9|27|16   |   01:43   |   (0) comments


Self-driving cars, medical sensors, smart cities... and refrigerators. In order to address the huge scope of IoT, KNect365 has created a unique online community that will help businesses to understand and monetize the opportunities that live within the IoT market. We look forward to welcoming you to IoT World News -- your gateway to a better connected future.
LRTV Interviews
AT&T: Re-usable Functions Next NFV Key

9|27|16   |   06:03   |   (0) comments


The next generation of NFV has to break functions down into re-usable software chunks, making everything much more cloud-like.
LRTV Interviews
Masergy on Security: Attackers Gaining Upper Hand

9|27|16   |   5:10   |   (2) comments


At Light Reading's NFV & Carrier SDN event in Denver, Ray Watson, vice president of Global Technology at Masergy, says that because of the growth in virtualization, the threat landscape is shifting in favor of the attackers. As a result, service providers need to think beyond just defending the perimeter and take a more holistic approach to security.
LRTV Interviews
Verizon Takes Next Step on Biz Virtualization Journey

9|26|16   |   4:38   |   (2) comments


At September's NFV & Carrier SDN event in Denver, Light Reading sat down with Victoria Lonker, director of Product and New Business Innovation at Verizon, to chat about where the carrier is with delivering virtualized services to business customers.
LRTV Interviews
Global Services: The $40B Face-Off

9|26|16   |   05:53   |   (1) comment


More service providers than ever before are battling it out to win a slice of what is now a $40 billion global communications services pie, explains Ovum Principal Analyst David Molony.
LRTV Documentaries
MEC Congress: The Key Takeaways

9|22|16   |   03:25   |   (3) comments


Three key takeaways from the Mobile Edge Computing (MEC) Congress in Munich, Germany.
Wagner’s Ring
Time to Shut Up About 'Dumb Pipes'

9|22|16   |     |   (12) comments


Service providers can't compete with OTT players. It just isn't in their DNA. Instead, service providers need to embrace what they're good at -- providing reliable, secure connectivity.
Wagner’s Ring
Keeping Your Tech Career Going After 50

9|21|16   |     |   (13) comments


How do you keep your career moving forward when you're past the half-century mark?
LRTV Interviews
Peering Into the Digital Future

9|20|16   |   04:25   |   (0) comments


Nick Thomas, practice leader of digital media at Ovum, talks about how digital transformation in the technology, media and telecom sectors will enable the development of a new range of applications and services for enterprises and consumers and how the upcoming Digital Futures event in London will examine ...
LRTV Custom TV
Napatech Tackles NFV's Major Challenge

9|7|16   |   08:42   |   (0) comments


One of the main challenges for network operators introducing NFV is to combine performance and flexibility in a cost-effective way, but there is a solution, explains Napatech's Dan Joe Barry.
Upcoming Live Events
November 3, 2016, The Montcalm Marble Arch, London
November 30, 2016, The Westin Times Square, New York City
December 1, 2016, The Westin Times Square, New York, NY
December 6-8, 2016, The Westin Excelsior, Rome
May 16-17, 2017, Austin Convention Center, Austin, TX
All Upcoming Live Events
Infographics
Hot Topics
Verizon CFO: Eat Our (Fixed) 5G Dust!
Dan Jones, Mobile Editor, 9/22/2016
WiCipedia: The Women Helping Women Edition
Eryn Leavens, Special Features & Copy Editor, 9/23/2016
Eurobites: Telefónica Taps Juniper for Network Security
Paul Rainford, Assistant Editor, Europe, 9/26/2016
Open Source Getting on My Nerves
Carol Wilson, Editor-at-large, 9/26/2016
Google, Facebook Gaining Network Equipment Clout
Patrick Donegan, Chief Analyst, Heavy Reading, 9/26/2016
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Light Reading CEO Steve Saunders and UXP Systems CEO Gemini Waghmare discuss the strategic importance of digital identity for operators in the midst of transformation.
Join us for an in-depth interview between Steve Saunders of Light Reading and Alexis Black Bjorlin of Intel as they discuss the release of the company's Silicon Photonics platform, its performance, long-term prospects, customer expectations and much more.
Animals with Phones
There's Nothing Like Missing a Full Minute of Pokémon Go Click Here
Live Digital Audio

A vital part of increasing the number of women in comms is transforming the ways companies can support and empower women. While progressive company policies that support both men and women in achieving work-life balance are a step in the right direction, creating a company culture that supports those policies can at times be more challenging.

During this show, we'll talk to Lynn Comp, Senior Director of Industry and Sales Enabling (ISE) in the Network Platforms Group at Intel, about why those challenges exist and how companies can overcome them. She'll provide insight into how Intel has worked to create a culture that supports work-life balance, and provide steps and guidance for other companies wishing to do the same. We will also leave plenty of time to get your questions answered live on the air.