Lucent's Wireless Weakness: Implications for Other Stocks

Excerpt from our One Page Annotated Wall Street Journal Summary (which you can get emailed to you every morning by signing up here):

Lucent Again Warns of Sagging Sales

• Summary: Lucent Technologies Inc. said that it revenue would decline 13% year over year and 5% sequentially in its fiscal Q3 (ending June 30th) due to lower sales to US wireless carriers and Chinese telcos. But CEO Pat Russo claimed that indications for future sales of high-speed wireless data gear for later this year looked healthy. This is Lucent's second pre-announcement so far this year: in January it predicted that sales for the year would be flat. Then, in April, it stopped issuing guidance, citing its merger with Alcatel which is still expected to close at year end.
• Comment on related stocks/ETFs: Lucent's stock (LU) fell 2.6% in after-hours trading in response to the announcement. But serial-disappointers tend to get penalized in the longer term, and there won't be many eager buyers today as the stock is "dead money" at least until the FQ3 results are finally announced July 26th. Given Lucent's history of missing numbers, the positive spin about future sales lacks credibility. Impact on other stocks: Lucent's press release stated clearly that the shortfall was concentrated in wireless. That's negative for other wireless infrastructure companies including Ericsson (ERICY), Motorola (MOT), Nokia (NOK), Powerwave (PWAV) and Andrew (ANDW), though Motorola and Nokia have less exposure to infrastructure due to their handset businesses. Weak wireless demand could also impact Qualcomm (QCOM), and Cisco (CSCO) which provides core routers for wireless networks. More broadly, Lucent's shortfall could negatively impact all the networking stocks -- including the wireline and optical stocks such as Nortel (NT), Tellabs (TLAB) and JDSU (JDSU) -- due to its position as the bellweather of the US telecom equipment space. Weakness in wireless is particularly concerning because it's the strongest part of the telecom equipment market, and now joins the list of weak technology end-markets, including PCs (weakness from Dell, AMD and Intel), storage (EMC) and flat panels (3M and AU Optronics).

Update: Jeffries analyst George Notter emailed clients a note that stated that Carrier Access (CACS) generates 71% of its revenue from North American wireless operators and Tellabs (TLAB) about 27%. ADC Telecom (ADCT) is in the process of acquiring Andrew Corp. (ANDW) and thus also has exposure.