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.
Flash Poll
From The Founder
Last week I dropped in on "Hotlanta," Georgia to moderate Light Reading's inaugural DroneComm conference – a unique colloquium investigating the potential for drone communications to disrupt the world's telecom ecosystem. As you will see, it was a day of exploration and epiphany...
LRTV Documentaries
Verizon's Emmons: SDN Key to Cost-Effective Scaling

5|22|15   |   03:53   |   (0) comments


For Verizon and other network operators to ramp up available bandwidth cost effectively, they need to move to SDN and agree on how to do that.
LRTV Documentaries
Lack of Universal SDN a Challenge

5|21|15   |   04:51   |   (3) comments


Heavy Reading Analyst Sterling Perrin talks about how uncertainty about SDN standards and approaches may be slowing deployment.
LRTV Custom TV
Steve Vogelsang Interview: Carrier SDN

5|20|15   |   05:02   |   (0) comments


Sterling Perrin speaks to Steve Vogelsang, Alcatel-Lucent CTO for IP Routing & Transport business, about the new Carrier SDN-enabling Network Services Platform and the operator challenges it solves.
LRTV Custom TV
Carrier SDN: On-Demand Networks for an On-Demand World

5|20|15   |   20:52   |   (0) comments


Steve Vogelsang, Alcatel-Lucent CTO for IP Routing & Transport business, talks about requirements and benefits of Carrier SDN during the keynote address at the Light Reading Carrier SDN event May 2015.
LRTV Documentaries
The Security Challenge of SDN

5|19|15   |   02:52   |   (0) comments


CenturyLink VP James Feger discusses concerns that virtualization could create new vulnerabilities unless network operators build in safeguards.
LRTV Custom TV
NFV Elasticity – Highly Available VNF Scale-Out Architectures for the Mobile Edge

5|18|15   |   5:50   |   (0) comments


Peter Marek and Paul Stevens from Advantech Networks and Communications Group talk about their NFV Elasticity initiative and the company's latest platforms for deploying virtual network functions at the edge of the network. Packetarium XL and the new Versatile Server Module: 'designed to reach parts of the network that other servers cannot reach.'
LRTV Huawei Video Resource Center
Bay Area Spark Meetup 2015

5|14|15   |   3:54   |   (0) comments


Developed in 2009, Apache Spark is a powerful open source processing engine built around speed, ease of use and sophisticated analytics. This spring, Huawei hosted a meetup for Spark developers and data scientists in Santa Clara, California. Light Reading spoke with organizers and attendees about Huawei's code contributions and long-term commitment to Spark.
LRTV Custom TV
The Transport SDN Buzz

5|12|15   |   06:01   |   (1) comment


Sterling Perrin, senior analyst at Heavy Reading, speaks with Peter Ashwood-Smith of Huawei and Guru Parulkar of ON.Lab about the evolution of transport SDN and the integration of technologies.
LRTV Custom TV
Next-Generation CCAP: Cisco cBR-8 Evolved CCAP

5|5|15   |   04:49   |   (0) comments


John Chapman, Cisco's CTO of Cable Access Business Unit and Cisco Fellow, explained the innovation design of Cisco's cBR-8, the industry's first Evolved CCAP, including DOCSIS 3.1 design from ground-up, distributed CCAP with Remote PHY and path to virtualization. Cisco's cBR-8 Evolved CCAP is the platform that will last through the transitions.
LRTV Custom TV
Meeting the Demands of Bandwidth & Service Group Growth

5|1|15   |   5:35   |   (0) comments


Jorge Salinger, Comcast's Vice President of Access Architecture, explains how DOCSIS 3.1 and multi-service CCAP can meet the demands of the bandwidth and service group growth.
LRTV Custom TV
DOCSIS 3.1: Transforming Cable From Hardware-Defined Network to Software-Defined Network

4|29|15   |   03:48   |   (0) comments


John Chapman, Cisco's CTO of Cable Access Business Unit and Cisco Fellow, explains how DOCSIS 3.1 can transform cable HFC network to a more agile software-defined network.
LRTV Huawei Video Resource Center
Predicting Traffic Patterns for Quality Mobile Broadband

4|29|15   |   6:45   |   (0) comments


Accessing information ubiquitously creates complexity and creates heavy traffic onto the network, especially at large-scale events like sporting events or festivals. In this video, Huawei's Mohammad Hussain speaks to experts about how to predict traffic and improve user experience during periods of heavy traffic.
Upcoming Live Events
June 8, 2015, Chicago, IL
June 9, 2015, Chicago, IL
June 9-10, 2015, Chicago, IL
June 10, 2015, Chicago, IL
September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
October 6, 2015, The Westin Peachtree Plaza, Atlanta, GA
October 6, 2015, Westin Peachtree Plaza, Atlanta, GA
All Upcoming Live Events
Infographics
Network functions virtualization (NFV) is not the easiest of topics to take on board, so here's a Light Reading infographic, developed following conversations with the folks at HP, that helps make sense of where NFV is taking the industry.
Hot Topics
Verizon Saves 60% Swapping Copper for Fiber
Sarah Thomas, Editorial Operations Director, 5/19/2015
Choosing a Technology Supplier? Consider Changing Your Selection Criteria
Steve Saunders, CEO and founder, Light Reading, 5/18/2015
Chattanooga Charts Killer Gigabit Apps
Mari Silbey, Senior Editor, Cable/Video, 5/20/2015
10 Alternate Uses for Tablets
Eryn Leavens, Copy Desk Editor, 5/22/2015
Smarter 'Dumb' TVs Will Drive OTT Adoption
Mari Silbey, Senior Editor, Cable/Video, 5/18/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
With 200 customers in 60 countries, Stockholm-based Net Insight has carved out a solid leadership position in one of the hottest vertical markets going in comms right now: helping service providers and broadcasters deliver video and other multimedia traffic over IP networks. How has Net Insight managed to achieve this success in the face of immense competition from the industry giants?
My ongoing interview tour of the leading minds of the telecom industry recently took me to Richardson, Texas, where I met with Rod Naphan, CTO and SVP, Solutions, ...
I recently popped down to Texas to chat with CEO Eric L. Pratt about his company, Taqua.
Cats with Phones