Shares of networking equipment bellwether Cisco (NASDAQ: CSCO) are higher today after the company surpassed Wall Street’s forecasts for its fiscal first quarter. The better-than-expected report was a welcome bright spot in what has been a somewhat lackluster earnings season for the IP network equipment sector.
Tekelec today said that revenue was down 2% from the year-ago quarter and orders were down 16%, although gross margins improved. Juniper Networks saw net income fall 13% from the same period a year ago. Alcatel Lucent saw profits improve in the third quarter, but revenue fell and the company decreased its full-year earnings estimate, blaming the poor economy in Europe. JDS Uniphase lost $5.8 million in the third quarter, but CEO Tom Waechter said he was very pleased with the results “during this period of macroeconomic uncertainty.”
GENBAND, a private company that competes in this sector, told analysts Tuesday that it also had a difficult third quarter, saying that carriers are not spending as much as the company had hoped.
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The European debt crisis certainly adds to economic uncertainty, but it’s not the biggest weight on the industry. Analysts who track network equipment makers say multibillion-dollar bailouts are less of a concern than the billions AT&T is preparing to pay to Deutsche Telekom. If AT&T does not spend $39 billion to buy T-Mobile, it is obligated to pay a $6 billion breakup fee to the German telecom giant.
Either way, companies who supply AT&T and T-Mobile see an uncertain outlook for equipment spending by those two companies. AT&T is the nation’s second-largest carrier (after Verizon) and T-Mobile is No. 4, so together they make up a large share of network equipment spending. Last year, 80% of all capital expenditures in the wireless industry came from AT&T, Verizon and Sprint, according to equity analysts at Jefferies & Company.