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.
More on Tellabs (TLAB): Q3 beats on its EPS but comes up shy on the revenue side. Total sales were down 20% Y/Y, but losses narrowed as operating expenses fell 61%. The company unveiled another round of job cuts, which will affect around 200 employees (out of a total of 3,246 employees). As a result of severance costs, it will incur a Q4 restructuring charge of around $11M. It also issued downbeat Q4 guidance, now seeing revenue between $240M and $260M, below the $290M estimate projected by analysts. Shares -4.6% AH.
More from Verizon: CFO Fran Shammo says Verizon's capex is down 10% Y/Y thus far in 2012, and that Verizon's capex-to-revenue ratio, which has been in a long-term decline, will fall further. Telecom equipment companies, already struggling to cope with Verizon and AT&T's conservative capex mindset, won't be happy to hear that. Meanwhile, Vodafone (VOD) won't be glad to hear Verizon declare talk about a new Verizon Wireless dividend "premature."
The House's Intelligence Committee has recommended Huawei and ZTE be shut out of the U.S. telecom equipment market due to security fears caused by their Chinese government ties. Unclear is whether the committee's stance will affect only infrastructure sales, or also the companies' U.S. mobile phone sales, which are growing quickly. Either way, infrastructure rivals such as CSCO, ALU, ERIC, CIEN, and TLAB must be pleased. (previous) (Huawei IPO rumor)
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.
Also selling off (previous) thanks to the poor guidance accompanying Ciena's FQ3 report: TLAB -3%. ALU -2.2%. CALX -2.9%. JNPR -4.6%. NPTN -3.8%. OCLR -3.9%. With AT&T and Verizon trying to boost near-term profits by keeping capex down, European carriers struggling with macro and debt issues, and Chinese carriers also beginning to put the brakes on spending, there are plenty of reasons to be worried about telecom equipment demand.
Tellabs (TLAB) founder and chairman Michael Birck discloses he has leukemia, and says he won't seek re-election at next spring's annual shareholder meeting. His announcement comes less than two months after CEO Rob Pullen died of cancer. (PR)
Huawei's 1H results are more proof of the tough capex environment facing wireline and mobile telecom equipment firms. Revenue rose just 5% Y/Y to CNY102.7B ($16.1B) - a notable slowdown for a company gaining share in many markets - and operating profit fell 22%. Still, Huawei is maintaining its target for 15%-20% 2012 sales growth. Rival ZTE delivered an ugly warning earlier this month, and so did Alcatel-Lucent and some U.S. vendors. Can mobile data growth drive a turnaround?
Today's crash in Alcatel-Lucent (ALU -17.9%), the result of more ugly earnings news, is leading many to question its survival, at least without a major restructuring. Nomura's Stuart Jeffrey notes Alcatel's remarks about failing to reach its operating margin guidance suggest it will struggle to turn cash flow positive. Goldman has argued liquidity pressures could arrive by 2013. Plenty of other telecom equipment names have warned. CIEN -2.9%. TLAB -2.4%. (Q1 miss)
Calix (CALX -10.2%) falls 23.8% AH after warning it expects Q2 revenue of $79M and EPS of $0.04, far below a consensus of $95.1M and $0.10. The broadband infrastructure provider, already hit hard by Adtran's Q2 report, blames weak service provider capex in multiple markets. The capex cuts, in turn, are blamed on macro issues and regulatory uncertainty. UBS' call on telecom capex is looking quite accurate at this point.