Tellabs: Carriers Cautious on Capex

Telecom operators in mature, developed markets are being cautious with their capital expenditure budgets in the first half of 2009 and will evaluate their ongoing needs midyear, once they have a better idea of customer spending patterns, according to Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) CEO Rob Pullen.

Pullen, on his company's fourth-quarter earnings conference call, noted that carriers in developed markets are set to cut their spending by between 5 and 10 percent in 2009 and will be particularly cautious for the first half of the year. (See Tellabs Feels the Pinch.)

That capex reduction range is in line with your views: The latest results from our readers' poll on carrier spending shows 31 percent of voters forecasting a global capex dip of 6 percent to 10 percent this year, though a further 31 percent believe the fall will be greater than 10 percent. (Click on this link to vote and see the latest results.)

As about two thirds of Tellabs' revenues come from North American operators such as Verizon Communications Inc. (NYSE: VZ), Pullen's assessment will go some way to explaining Tellabs' outlook for the first quarter of 2009 -- a year-on-year dip in revenues from $464 million for the first three months of 2008 to somewhere in the $345 million to $375 million range for the current reporting period. (See Verizon's FiOS Grows, Wireless Slows in Q4.)

Verizon noted today in its earnings call that, having splashed $17.2 billion on capex in 2008, it is "targeting capital spending, excluding amounts related to the acquisition of Alltel Corporation, to be less than the 2008 total."

Things are different in the so-called emerging markets, a term usually used to refer to countries in Asia/Pacific, Latin America, Africa, and the Middle East, especially Brazil, China, and India.

Pullen says operators in those markets are looking to spend about the same as they did in 2008 as they continue to build out their transport and (especially) mobile access networks to accommodate an ever-increasing customer appetite for voice and simple data services. (See IndiaWatch: Mobile Nears 347M Subs, Emerging Markets Offer Capex Hope, and Capex Watch: Expect Shrinkage in 2009.)

"Customers tell me they are going to spend," says Pullen, as they have to support the services that, ultimately, drive their cashflow. "Carriers are not in as bad a shape as they were in 2001."

Pullen also commented on the potential extra business that his company, along with a host of others, hope might become available if an economic stimulus package is given the green light by U.S. lawmakers: Of the current proposed $825 billion package, $6 billion has been earmarked for rural broadband rollout (fixed and wireless). (See The Future of Fiber Access.)

"That could benefit us in a number of ways," stated Pullen, who smells sales opportunities for his firm's fiber access and backhaul aggregation platforms.

The fiber access business line could certainly do with a boost. Following the decision to discontinue the "non profit-making" GPON product line that had been developed for Verizon, the housing sector crash has hit the level of new broadband builds, which in turn has hit the broadband equipment sector en masse. (See Tellabs Kills Its Verizon GPON Efforts.)

As a result, a large chunk of the expected first quarter 2009 revenues shortfall will come from an expected slump in ONT (optical network terminal) sales, as sales of BPON products tail off while the carrier migrates further towards GPON rollouts, admitted Pullen.

— Ray Le Maistre, International News Editor, Light Reading

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