Carrier Capex Could Rebound Quickly

Carrier spending in North America is due to come back, analyst George Notter of Jefferies & Company Inc. wrote in a note published Monday.

What he means is that spending will return to the levels of, say, the third quarter of 2011. But even a normal spending level would be a relief to equipment vendors that saw fourth-quarter earnings torpedoed by service provider frugality.

Why this matters
Equipment vendors have been issuing bleak predictions about carrier capital expenditures, especially in North America and especially -- it's presumed -- for AT&T Inc. (NYSE: T). A return to normality would make for pleasantly surprising first- (or possibly second-) quarter earnings.

With that in mind, you have to consider it's possible that the companies are just sandbagging, trying not to look bad if capex doesn't rebound. Acme Packet Inc. (Nasdaq: APKT) officials practically admitted to lowballing their forecast, and it's possible that Juniper Networks Inc. (NYSE: JNPR) is doing the same, as analyst Brian Marshall of ISI Group Inc. speculated in a recent report.

AT&T and Verizon Communications Inc. (NYSE: VZ) hadn't finalized their budgets as of last week, which would be a legitimate reason for vendors to be cautious. Notter thinks AT&T has a healthy order backlog even on the wireline side ... but none of that is real until a budget gets approved. AT&T's budget might take a little longer than usual as the company erases T-Mobile US Inc. from its plans.

For more
Some recent earnings results that cited weak capex, especially among North American carriers:

— Craig Matsumoto, Managing Editor, Light Reading

gtchavan 12/5/2012 | 5:43:24 PM
re: Carrier Capex Could Rebound Quickly

Of course it has bounced back.   These guys are always fighting the last war.  The Fed break of ATT and T-mobile was the bottom.

ninjaturtle 12/5/2012 | 5:43:19 PM
re: Carrier Capex Could Rebound Quickly

Again INFN will benefit greatly from this additional Capex in the next 2-3 years of what is determined to be the next major build-out. 60% of traffic will be video with 2 years. INFN has the right gear at the right time. If you wait you'll be late on this one. maek these words LR.

Pete Baldwin 12/5/2012 | 5:42:31 PM
re: Carrier Capex Could Rebound Quickly

Notter put out a note this morning saying AT&T might have finally completed its budget and released it internally.

The note doesn't say much else -- I'm not sure it even confirms his theory about capex going back up. But the report calls out Juniper as a possible beneficiary, so, yeah, the stock's up today.

Flook 12/5/2012 | 5:42:29 PM
re: Carrier Capex Could Rebound Quickly

Given all the doom and gloom, it's heartening to hear some are expecting a "rebound" in carrier capex. Rosy predictions may make people feel good, but what are such optimistic predictions based on? Unless someone is living on a different planet, the U.S. economy doesn't look in great shape, some EU countries are in real trouble, Russian economy is slowing. Well, I guess China and India, relatively speaking, are doing fairly well.

Please do tell what is going to drive carrier capex?


Pete Baldwin 12/5/2012 | 5:42:28 PM
re: Carrier Capex Could Rebound Quickly

It's mainly AT&T. Spending is looking flat in general, but the equipment vendors have been saying that certain sectors (i.e. AT&T) had a lot of question marks going into this quarter.

AT&T slowed down spending at the end of last year, so Notter is basically saying AT&T capex is going to spring back and that vendors are just being conservative.

So, "rebound" means a rebound back to last year's normal spending, as opposed to the big pause that some vendors saw at the end of the year.

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