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Communications equipment spending rising

Posted: 04 Aug 2004 ?? ?Print Version ?Bookmark and Share

Keywords:communications? wireless network? dsl?

A new study says trends indicate that communications equipment spending is emerging from its long downturn and is poised for a rebound.

A Standard & Poor's Equity Research unit released the study Thursday (July 29, 2004). It covers spending for communications gear by enterprise customers and by telecom service providers. It says a spending rebound is already underway.

"At the end of the quarter and the end of the year, you'll be hearing the 'R word' -- recovery," said report author Ari Bensinger, S&P's communications equipment analyst.

"Demand for communications equipment among enterprise customers depends largely on the strength of the economy," said Bensinger. "Recent key economic indicators, such as higher employee payroll growth, point to an improving technology spending environment."

Developments in wireless equipment markets are a clear harbinger that those markets are turning around, Bensinger said.

He singled out Ericsson as one example, noting that earnings for its most recent quarter were up sharply from forecasts - 44 cents versus the 27 cents per share that had been expected.

The growth is attributed to a renewed interest in 2G wireless networks - because cellphone subscribers are finding dropped calls are unacceptable - and to the build out of 3G networks. "These companies weren't just standing back during the downturn," he said.

Bensinger said recent reports from two companies to illustrate what he says represent a major turnaround in fiber. First, he said that fiber components manufacturer JDS Uniphase Corp. recently logged a book-to-bill ratio of 1 to 1.2 - a signal that orders are improving. Also, the fiber optic cable unit of Corning Inc. is up 30 percent. Although that pace is likely unsustainable, Bensinger said the dramatic improvement still signifies a turnaround.

S&P is likewise bullish on fiber to the premises technology that, for instance, is being rolled out in several states by Verizon Communications and will eventually compete with cable for video transmission.

"Over the long term," he said, "Standard & Poor's views DSL as a largely transitional technology, and ultimately expects fiber to the home, which offers much greater bandwidth capacity than DSL, to be installed on a mass commercial basis."

The report predicts that telecom service providers will spend $30 billion this year on communications gear.

- W. David Gardner

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