Sector Preview: Networking Equipment
19.04.2007 18:45
Computers
- Source: Forbes
After a solid finish to 2006, some analysts expect seasonal weakness for networking and communications equipment companies' first calendar quarter. The companies that make routers, switches and other equipment used to manage data, voice and video transmissions over computer networks have seen healthy demand from service providers upgrading their networks. Cable companies and telecom carriers are racing to deliver "triple play" - bundled voice, video and data services - in a fierce battle for customers, which means good business for the networking equipment makers. But seasonality and industry consolidation, coupled with mixed demand trends in important international markets such as Europe and Japan, will likely result in "uninspiring March quarter results for the majority of communications equipment suppliers," wrote Canaccord Adams analyst Joanna Makris in a note to investors. Makris said her industry checks show the quarter got off to a slow start, with demand trends improving only recently for most companies. This year, she added, spending among service providers will likely be concentrated in key areas such as broadband access and WiMax (an emerging wireless technology that delivers high-speed Internet connections), among others. Scott Coleman, who covers communications equipment stocks at Morgan Stanley, called Wall Street's expectations for the sector "reasonable." But he added that predictions for a margin recovery starting in the second quarter may be too aggressive for some companies, and he "would not expect overall performance relative to the market to improve at this point." The technology hardware and equipment sector, he noted, underperformed the Standard & Poor's 500 during the quarter, reversing its trend from the second half of 2006. Of the sector's largest names, the analyst said industry leader Cisco Systems Inc., which reports its fiscal third-quarter results on May 8, could beat expectations. On average, analysts polled by Thomson Financial expect Cisco to report income of 33 cents per share. Juniper Networks Inc., which recently finished restating its finances over stock options granting errors, could meet or slightly surpass expectations, said Morgan Stanley analyst Scott Coleman. He said spending among wireline carriers is off to a better than expected start this year, which could push Juniper's results higher. The consensus Wall Street view for Juniper's earnings is 19 cents per share. Juniper bid goodbye to its chief financial officer and an executive vice president in March, in what the company called "mutual decisions" related to a review of its growth plans. Adtran Inc., whose network access products are used by wireless and wireline carriers such as AT&T Inc. and Verizon Communications Inc., has already posted earnings for the quarter, beating Wall Street's expectations. Bear Stearns analyst Philip Cusick said in a note to European investors he expects Paris-based Alcatel-Lucent to post a "challenging" first quarter. The company "may experience some softness in sales as its sales teams remain demoralized and the integrated product portfolio continues to be finalized," he wrote. Alcatel bought Lucent late last year, and the company planned to cut costs, in large part through thousands of layoffs. Copyright 2007 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed
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