Slowdown Hits Telecom Gear Makers Hard

The current economic slowdown is beginning to hurt telecom equipment makers, and their prospects aren’t likely to change much in 2009, as indicated by the spending plans outlined by some of the major service providers.

For instance, AT&T said that it will cut its capex spend by 10-15 percent, or about $3 billion, and moderate its U-verse expansion plans. Verizon hasn’t been quite as blunt about its plans, but analysts expect the company to tighten its belt as well, and its suppliers are already starting to feel the hurt. Router maker Juniper Networks, for example, which counts Verizon among its customers, says it’s expecting lower revenues during the coming months.

Sunnyvale, Calif.-based Juniper today reported its fourth-quarter earnings, and while its 32-cent-per-share profit was in line with analyst expectations, revenue came in at $923 million, below Wall Street’s average forecast of $936 million as sales of routers and other gear to service providers declined by five percent. Juniper CEO Kevin Johnson told analysts that companies were pushing out orders, delaying taking delivery beyond the first quarter of 2009. One can understand their reticence — there are far fewer broadband buyers in the market, be they consumer or corporate.

On their call with analysts, AT&T executives indicated they were feeling the pressure in the small-to-medium enterprise segments of their high-margin legacy voice and data services business. Even retail business lines fell 4.3 percent for the full-year 2008 period. And as AT&T gets tight-fisted with its dollars, its suppliers, such as Adtran, are feeling the squeeze. (Related posts: Trouble Returns to the Land of Telecom and A Bleak Future for Telecom)

“With the economy slowing down, both housing starts, turn of people, changing from one house to another is down as well…therefore, it also is negatively impacting our access business,” said Rob Pullen, CEO of Tellabs, which makes the equipment used in broadband networks.

I would be looking at the spending plans by cable operators in order to get a better handle on how bad it will really get in the coming months. Of course, as always, I would love to hear what your thoughts are on the downturn and telecom equipment demand.

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