Ciena (CIEN +3.7%) rallies after announcing Comcast will deploy the company's 6500 Packet-Optical platform, which puts Ethernet switching and optical transmission capabilities in the same box. Moreover, the 6500 will be used to support 100G optical links with the help of Ciena's WaveLogic processors - investors are counting on 100G deployments to fuel 2013 growth. Ciena moved higher yesterday in response to Adtran's Q1/2013 guidance. Rival Infinera was upgraded this morning by JPMorgan.
Adtran (ADTN +4.7%) opened lower in response to its Q4 report, but has shot higher after guiding on its call for Q1 revenue to be similar to Q4 levels, and for the company to grow in 2013 as regulatory issues (presumably related to U.S. broadband spending). Analysts currently expect Q1 revenue to be down fractionally Q/Q, and for 2013 revenue to be roughly flat with 2012 levels. CIEN +3.8%.
Telecom equipment stocks are having a rough day. The group has rallied in recent weeks, and (in spite of some encouraging signs) worries about wireline capex haven't fully dissipated. ALU -7.8%. ERIC -4.8%. JNPR -2.2%. CIEN -3.6%. INFN -2.3%. FFIV -1.8%. RVBD -3.3%. ALLT -5.4%.
Though FQ4 results missed estimates and guidance for FQ1 revenue of $435M-$460M isn't favorable with a $458.6M consensus, Ciena (CIEN +1.8%) is trading higher. Few expected a great report in light of soft wireline capex, and a record backlog is going over well. Also, gross margin rose 290 bps Q/Q to 42.7%, and is expected to stay in the low-40s in FQ1. Optical transport sales (62% of total) saw a 2% Y/Y decline and optical switching fell 50%. But carrier Ethernet sales rose 66% and software/services 21%. TLAB +1.5%. FNSR +5.3%. OCLR +2%.
Finisar (FNSR +3.2%) opens with a solid gain after Needham upgrades shares to Buy and sets an $18 PT. The firm cites improved 2013 service provider capex following a rough 2012; improving demand for Finisar's ROADM line cards and LcOS optical switches, and continued sell-outs for its high-end 40G/100G optical transceivers. Rivals are also doing well today: OCLR +1.6%. JDSU +2.2%. OPLK +2.8%. So is equipment vendor Ciena (CIEN +2.7%), which has strong 40G/100G exposure.
Juniper (JNPR) +2.5% AH and F5 (FFIV) +1.4% after Cisco beats FQ4 estimates, provides decent FQ1 guidance, and delivers relatively upbeat earnings call commentary about U.S. and Asia-Pac demand (though not Europe), particularly regarding service provider activity. Some other names to keep an eye on tomorrow: RVBD, CIEN, JDSU, FNSR, TLAB, ALU, AMCC, ADTN.
U.S. cell tower owners American Tower (AMT +2.4%), SBA (SBAC +1.6%), and Crown Castle (CCI +0.8%) are also getting a lift from AT&T's (T -2.3%) capex plans, which include a push to offer 4G LTE services as a broadband option for rural areas. Wells Fargo expects AMT to benefit from AT&T's plan to adds 10K new cell sites and 40K small cells, while Citi views Ciena (CIEN +8%), Juniper (JNPR +1.8%), Cisco (CSCO -0.9%), and Adtran (ADTN +4.2%) as beneficiaries of Ma Bell's wireline investments.
In addition to hiking its dividend, AT&T (T -2.9%) says it plans to spend $22B on capex each of the next 3 years, up from 2011's $19B-$20B. $8B will be spent on building AT&T's 4G LTE network, which trails Verizon (VZ -1.5%) in terms of coverage, and $6B on expanding its wireline broadband network. AT&T is also guiding for mid-single-digit annual EPS growth over this time. Capex-starved telecom equipment/component names are rallying. CIEN +11.2%. ADTN +8.1%. APKT +5.8%. JNPR +2.1%. JDSU +6.8%. ALU +2.5%. (investor day: webcast, slides)
Telecom equipment and chip/component names are underperforming following Alcatel-Lucent''s (ALU -9.5%) downbeat Q3 numbers, which included an 11% Q/Q and 18% Y/Y drop in Optics division revenue. CIEN -3.6%. TLAB -1.2%. FNSR -2.6%. OCLR -1.5%. APKT -2.4%. CALX -2.1%. ADTN -2.3%. ALTR -3.1%. CAVM -2.9%. Worries about telecom capex have long been running high.
The Street initially seemed comfortable with the soft Q4 guidance Juniper (JNPR -8.3%) provided with its Q3 report, but it's had a change of heart. Earnings call remarks about there being "no evidence of ... a significant improvement in the spending environment over the next few quarters" are likely a big reason why. Other networking equipment/component names are also off: CSCO -1.9%. CIEN -3.3%. JDSU -2.9%. RVBD -3.3%. FNSR -2.9%. APKT -2.6%. Soft guidance from Corning, Altera, and Broadcom could also be having an impact.
ZTE shares plunge 15.1% in Hong Kong after China's second-largest telecom-equipment maker warns that it will make a Q3 loss of up to 2B yuan ($319.1M). ZTE blames a delay in some overseas deals and a large number of low-margin contracts in Europe, Asia and the domestic market. U.S.-listed shares on watch include ALU (-1.7% in Paris), ERIC (-0.85% in Stockholm), CSCO, JNPR,CIEN, MMI, BBND. (PR)
Some of the problems behind Adtran's (ADTN -10.5%) Q3 warning are company-specific, suggests MKM's Michael Genovese. Adtran is "under competitive attack" from Calix (CALX -2%) at rural telcos, he writes, and the company's sales to AT&T and Verizon are partly under pressure due to by declining sales of legacy hardware (presumably a reference to Adtran's T1/T3 and SONET gear). But Genovese grants the warning will heighten near-term investor concerns about industry peers such as ALU, CIEN, and TLAB.
Telecom equipment and optical component names slump in response to Adtran's (ADTN -8.9%) warning. CIEN -3.1%. JNPR -2.1%. APKT -3.3%. JDSU -3.5%. FNSR -4.3%. Adtran heavily blamed its shortfall on "delays in project rollouts" from U.S. carriers. That's a familiar refrain for both Adtran and its peers. AT&T and Verizon are doing their best to restrain capex in order to boost near-term profits, and the money that they are spending is increasingly focused on their faster-growing wireless ops.
Ciena (CIEN -2.6%) falls after Raymond James' Simon Leopold throws cold water on the Street's excitement over the company's growing 100G optical transmission gear sales. 100G still only makes up 6% of Ciena's sales, Leopold notes, and while that number will grow next year thanks to design wins, it will bring with it a margin hit. Ciena fell last month after warning of "slower-than-expected rollouts" for new design wins.
More on Ciena's FQ3: The company expects FQ4 revenue of $455M-$480M, below a $499.5M consensus. It also expects gross margin to slip to ~40% from FQ3's 44.1%, and opex to grow to the "low $180s million" from FQ3's $175.2M. Optical transport (63% of sales) grew Y/Y but fell Q/Q. Ciena blames macro issues and "slower-than-expected rollouts" (likely related to 40G/100G optical gear) for its woes. CIEN -11.6%. Also lower: JDSU -2.2%. FNSR -2.7%. (other telecom equipment warnings: I, II, III, IV)