In research notes this week, UBS analysts wrote, “Recent data points suggest March and April 2009 US carrier spending is modestly improving from low levels in early 2009.”
This morning AT&T reported having spent $3.17 billion in the first quarter — less than analysts were expecting but nearly in line, the carrier said, with its typical practice of spending about 20% of its annual budget in the first quarter. (AT&T had projected a 2009 capex of $17 billion to $18 billion, so it actually spent about 18% or 19% of that in the first quarter.) That would imply the worst could be over for AT&T’s suppliers.
“AT&T’s report and outlook leaves more spending for the balance of the year than we previously envisioned, and this bodes positively for communication equipment suppliers,” Morgan Keegan analyst Simon Leopold said in a research note following AT&T’s earnings report today.
However, AT&T’s spending could be impacted if the labor negotiations currently ongoing result in a strike. And even without a strike, AT&T expects to spend 10% to 15% less this year than last.
After Ciena reported a continuing chill on carrier spending in January, Adtran, one of the first US equipment vendors to report results for the March quarter, reported a modest relaxation of carrier purse strings, thanks in part to the promise of federal broadband stimulus funding. Consistent with AT&T’s comments today, Adtran, which is an AT&T supplier, has said it expects the first quarter to be its toughest this year, as in most years.
Still, not all vendors are echoing Adtran’s tone. Infinera this week reported a sharp decline in first-quarter revenue as some of its large customers delayed equipment deployments amid the uncertain economy. Even if vendors have seen their worst quarter, they’re likely far from being out of the woods yet.
UPDATE: For a more detailed analysis of 2009 carrier capex, look here.
UPDATE 2: RBC Capital’s Mark Sue in an April 24 research note following Juniper Networks’ first-quarter earnings report: “The bottom, as it relates to sharp reductions in networking spend, seems to be behind us.” Juniper executives stopped short of calling the bottom during their earnings call Thursday night, citing a continuing lack of visibility, but they said conditions were “stabilizing” and that carriers that had previously pushed back product orders are now asking for shipments.
“We grew in Q1 in the enterprise market,” Juniper CEO Kevin Johnson said Thursday. “We’re on a growth trajectorty there…The question becomes, on the service provider side, how does that unfold over the next quarter or two? We’ll have to watch that.” Juniper’s enterprise sales were up 13% from a year earlier while service provider sales were down 14%, though Verizon (which reports its earnings next Monday) was the only customer to contribute at least 10% of Juniper’s $764 million first-quarter revenue.
Meanwhile, Zhone Technologies — a likely broadband stimulus beneficiary — reported a 22% sequential revenue drop in the first quarter but predicted 12% to 16% revenue growth in the second quarter, which CEO Mory Ejabat called “a turning point in which we break the secular trends of declining revenue.”