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EuroWire – January 2010
18
Transat lant ic Cable
Telecom
Showing modest gains, third-quarter results
hearten badly battered equipment makers
The most recent earnings report from Tellabs (Naperville, Illinois)
is one of several signs that the worst of the slump in spending for
telecom gear may be ending in the US. The designer and maker
of telecom equipment for service providers said its revenue went
up 1% in the third quarter from the previous quarter, a small but
significant rise and the second straight uptick.
As noted by Olga Kharif, a senior writer covering technology for
BusinessWeek.com, Tellabs has some way to go: third-quarter
revenue was 8.3% lower than in IIIQ 2008. Even so, she took its
latest report as indicating that the telecom gear market may
be in tentative recovery. The industry was badly jolted in 2008
when enterprises slashed spending on networks, and phone
providers curtailed investment in systems that deliver
communications services. (“Piecing Together a Telecom Gear
Rebound,” 26
th
October)
Ms Kharif cited other third-quarter results supporting a
turnaround. Juniper Networks (Sunnyvale, California), a maker of
networking equipment, said its sales rose 5% from the previous
quarter. And Infinera, another Sunnyvale-based company,
reported a 21% sequential sales increase and a 3% gain from
a year earlier.
“It looks like the first half of this year was the bottom,” Infinera
CEO Jagdeep Singh told Ms Kharif. “It looks like we are in the
early stages of a recovery.”
Infinera makes equipment used in fibre optic networks in
metropolitan areas. The view of the broader market for wireless
and wireline equipment is even more encouraging. The market
research and consulting firm IDC (Framingham, Massachusetts)
thinks carriers trying to improve their networks after delaying
some upgrades may push second-half spending as much as
8% higher than that in the first six months of 2009.
Moreover, Ms Kharif pointed out, demand for telecom
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equipment may also be spurred by the government stimulus
package aimed at improving broadband access in the US.
Washington has earmarked about $7 billion in broadband
spending so far, and Federal Communications Commission
chairman Julius Genachowski said the agency is also
looking at ways to boost non-government spending, too.
In a discussion of regulations for an open Internet as well as
other telecom and technology topics, he said, “There is no
question that it will take a lot of private investment to do
what’s necessary.”
Many industry insiders note the obvious: that spending
on telecom equipment could recede again if the larger
economic recovery falters. Customers “will be conservative
at the beginning of the year, just to make sure we don’t hit
the double dip,” Kim Perdikou, an executive vice-president
at Juniper, told BusinessWeek.com. “Now they are very
strategically pinpointing where the revenue growth is and
spending in those areas.”
Landline giants AT&T and Verizon now see
their future in mobile networks and devices
For their part, the US telecom titans AT&T and Verizon
Communications – which might have been expected to trim
their sails during the recession – are likely to register a combined
total as high as $35 billion in capital investment last year, about
what they spent in 2008. According to their chief executives,
hopes of a return on that investment rest squarely on the
companies’mobile networks.
The loss of interest in their landline businesses is absolute,
if Ivan Seidenberg can be taken at his word. The Verizon CEO told
a Goldman Sachs investors conference in New York in the fall,
“I don’t care about that any more” – that being the traditional
area in which Verizon made its name and its fortune. Equally
emphatic about his company’s commitment to wireless, AT&T
chief Randall Stephenson said he expects new electronic
devices geared to mobile access to open up additional
revenue streams. “We’re investing very, very hard in this area,”
Mr Stephenson said. “The next wave of growth in the industry
is centered around the concept of mobility.” Indeed, in the very
week of the Goldman conference AT&T announced a deal to
include mobile-Internet access in a new GPS navigation device
produced by Garmin Ltd.
Incorporated in the Cayman Islands and based in Kansas, Garmin
has its largest operating subsidiary and primary production
facility in Taiwan. Jeffry Bartash, who follows telecommunications
from Washington, DC, wrote in the Wall Street Journal
(21
st
September), “The way [Messrs Seidenberg and Stephenson]
see it, consumers and businesses are increasingly willing to
spend more on wireless data and Internet service as long as the
carriers can meet their need for greater speed and reliability.”
Mr Bartash saw few signs that the AT&T and Verizon
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executives feel threatened by smaller rivals offering lower
prices but less attractive handsets and more limited
networks. AT&T has exclusive US rights to sell the Apple
iPhone – a tremendous asset even if the phone’s popularity
has the company straining to ease network congestion.
Verizon benefits from its reputation for running the network
widely considered to be the best in the country. To maintain
that commanding lead, the two companies plan to spend
billions of dollars over the next few years to migrate to
LTE (long termevolution) wireless technology, whichpromises
to handle more Internet traffic at much faster speeds. “The
whole idea here is for us to not take our foot off the gas,”
Verizon’s Ivan Seidenberg told the investors gathered in
New York. “And we will not take our foot off the gas.”
Automotive
GM moves to shed more than one-third of
US Saab dealers as the brand is sold, unsold,
and goes back on offer – pro tem
In mid-November, Saab was waiting out the preliminaries
of its sale by General Motors to the Swedish supercar maker