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.
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.
