Optical/IP Networks

US Vendors Down but Not Out

A double dose of quarterly financial ills from network equipment vendors Motorola Inc. (NYSE: MOT) and Lucent Technologies Inc. (NYSE: LU) is failing to dampen the spirits of market analysts who believe the wireless infrastructure market has overcome the worst of the downturn.

Motorola yesterday reported a 17 percent fall in infrastructure sales compared to the year-ago quarter, with a 15 percent decline in orders to $930 million (see Moto Q2 Sales Fall 10%).

Lucent meanwhile warned that its next quarterly report -- due July 23 -- will show a sequential revenue drop of 18 percent. As a result of “reduced spending in North America and an unexpected network acceptance delay” within its wireless division, the company has also pushed back its target of profitability to 2004, from the previously touted timeline of fiscal end 2003 (see Lucent Warns: No Profit in '03 and Lucent Punts 2003 Profit Pledge).

Despite the negative blitz of news, the financial community remains upbeat that the wireless equipment market is finally showing signs of a potentially healthier future.

Nomura Holdings Inc.'s Richard Windsor claims that Motorola’s results validate the investment bank’s assertion that “the mobile infrastructure market is at last showing signs of stabilization. From operators right the way through to component vendors, the message is clear -- the days of deep spending cuts appear to be over."

Steven Levy of Lehman Brothers is in agreement. “We continue to believe that 2003 is the last year of declining carrier capital spending, and thus the pain should begin to subside for just about all companies by the end of this year."

In response to Lucent’s difficulties in North America, Levy expects the slowdown in spending to be a “temporary situation, likely to be reversed in either the September or December quarters.”

Rivals Nokia Corp. (NYSE: NOK) and LM Ericsson (Nasdaq: ERICY) are expected to show wildly conflicting results for the second quarter later this week.

Nokia is set to record a healthy pre-tax profit when it anounces its earnings tomorrow, despite a decline caused by its ailing networks unit.

In contrast, network market leader Ericsson is tipped to post its 11th straight pre-tax loss on Friday.

— Justin Springham, Senior Editor, Europe, Unstrung

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