Lucent Lowers Growth Estimate; Fallout for Wireless Component Vendors? (LU, VZ, CHU, PWAV, ANDW)

Lucent announced on Friday that it is lowering its FY06 revenue growth projection citing weaker demand from the US and China as key causes. In a note to clients, Lehman Brothers' analyst Jiong Shao maintained his Overweight rating on the company, explaining:

While we are clearly disappointed by the Dec-Q miss, the revised FY06 revenue guidance suggests that Lucent's revenue expectation for the remaining three quarters of the fiscal year remain unchanged. We also expect there will be no change in gross margins and Lucent cost structure. Therefore, we don't anticipate much estimate revisions beyond the Dec-Q in FY06 and no change in FY07 estimates when the company provide full Dec-Q results.

In a separate note to clients, Lehman analysts Jeff Kval and Tim Luke highlight the influence of Lucent's announcement on key component providers Andrew and Powerwave. For both companies Lucent is a 5%+ customer, however Lehman estimates that Andrew is more exposed to risk arising from wireless spending at Verizon and China Unicom:

We estimate that Andrew's exposure to Lucent, Verizon, and China Unicom may be in the range of 10-15% of sales... Given Powerwave's EPS valuation (approximately 19x 2006 EPS vs. Andrew's 25x 2006 EPS), Powerwave is our preferred pick out of our infrastructure component vendors.

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