Packets Key to Capex Comeback
All things being equal, the health of the telecommunications equipment market really has one master: the capital spending (capex) budgets of the major telecom carriers.
So what's in store for 2004? Research from Light Reading Insider, Light Reading's paid subscription service, shows that the large carriers are finally getting serious about their forays into next-generation packet-switching and routing gear -- and they're starting to spend money on it.
In fact, the latest Insider, "Capital Spending Outlook," shows a raft of RFPs brewing in the multiservice and IP networking markets for the new year. This is where some of the largest battles for carrier cash will be likely be fought. Here are some of the important ones:
- Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR) are duking it out for a big edge routing spend at Verizon Communications Inc. (NYSE: VZ).
- A multiservice edge (MSE) RFP has garnered interest at AT&T Corp. (NYSE: T), where Cisco and startup Laurel Networks Inc. are in the running.
- Sprint Corp. (NYSE: FON) could provide a big boost to Sycamore Networks Inc. (Nasdaq: SCMR), where a new switching deployment is in the works (see Sycamore Sneaking Into Sprint?).
- FTTP initiatives at providers such as Verizon and SBC Communications Inc. (NYSE: SBC) are wildcards, but they could benefit companies such as Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI), Alcatel SA (NYSE: ALA; Paris: CGEP:PA), and Corning Inc. (NYSE: GLW) (see Verizon Doubles FTTP Supply List and SBC Picks Alcatel for FTTP).
- SBC may ramp up spending for Cisco's Ethernet and enterprise access gear as it deployes more packet-based services.
- Cisco, Fujitsu Network Communications Inc. (FNC), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Corp. (NYSE/Toronto: NT) continue to be in the hunt for a number of multiservice Sonet RFPs.
Overall, Insider research shows that capex trends look far more favorable for 2004 than they did in 2003 (see Carrier Capex Set for 2004 Rebound). The report concludes that the shift to next-generation multiservice packet and IP networking gear is a long-term trend that is likely to take hold as the next capital spending cycle ramps up into the latter half of the decade.
Another good sign is that carriers have returned to their historic norms in spending, in terms of a percentage of revenue. At the height of the investment bubble, these numbers skyrocketed as high as 80 percent to 90 percent of revenue, fueled by massive debt and equity investment. With historical norms of capex/sales ratios being in the mid teens percentage-wise, this pattern was bound for a correction. These have since fallen to a more normal range of 10 percent to 15 percent of revenue.
Light Reading Insider's research tracks the spending plans of the "Big Six" carriers – including AT&T, BellSouth Corp. (NYSE: BLS), SBC, Sprint, Qwest Communications International Inc. (NYSE: Q), and Verizon.
— R. Scott Raynovich, US Editor, Light Reading
The current Light Reading Insider report – "Capital Spending Outlook" – is available here. A single-user license to the report is $400. An annual single-user subscription to the Insider, which includes access to the complete archives, the current report, and each of the monthly reports issued over the next 12 months, is available for $1,250 per year.