CAPEX Thoughts Ahead of Q3 Earnings
Next week starts tech earnings and we will get a lot of data points on service provider CAPEX in the US. I am going to make the assumption that Asiais fine and EMEA is soft, so anything worse or better will be a surprise. What I want to know is what is going on in the US. There are few reasons for my curiosity. The first data point was NTAP’s CFO, Steve Gomo at the Deutsche Bank Tech Conference on September 14. He said “…there’s I guess some minor mindset out there that thinks that they’ve [Financials] purchased so much that they’re kind of on a pause, they’re digesting what they’ve purchased. I don’t think we’re in that category. We’re pretty close to some of these very large banks, again nine of them we consider major accounts, where we have major accounts we have executive sponsorships and whatnot. So we’re very close. And what we’re seeing is literally reduction in spend. And somewhat dramatic reduction in spend. And I’m not going to name names here, but we have several banks that have told us that they’ve been asked to cut back billions or $500 million type of spend out of their IT budget between now and the end of their fiscal years.” What concerns me about this statement is if this spending reduction is being seen by the enterprise sales teams of large service providers (an if statement) then they will slow role CAPEX in 2H of the year. To reiterate, this is an unproven assumption.
Two days ago APKT pre-announced a Q3 miss due to a delayed order from AT&T. The question is why did AT&T push out an order from Q3 to Q4 as the CEO stated? Was it just a delayedPOin a larger multi-vendor deal or something else? There is another theory that occurred to me today and that is ATT is in the middle of a fight with the DoJ over acquiring T-Mobile. When a company spends $20B a year in CAPEX and has 294k employees, it has the assets to make a statement. It is just a possibility.
There have been no other significant negative pre-announcements by networking companies in the quarter to scale of APKT, so it is very plausible that this was just a one off event. However, I would remind readers of what I wrote back in July about CAPEX. Maybe I was not clear in my July post so I will try to be clear now. I think there is real risk that 2011 is a year in which CAPEX ran hot in the 1H and will be slow in the 2H. Maybe this has been priced into the street already – then again maybe it has not.
We will start to acquire data points next week:
– ADTN on 10.12
– JNPR on 10.18
– T on 10.20
– VZ on 10.21
– TLAB on 10.25
– ALU on 11.04
– CSCO 11.09
* It is all about the network stupid, because it is all about compute. *
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