Posts Tagged ‘telecom’

Telecom Monday: Telcos Face the Credit Crunch and Moto’s New Android Phone

October 20, 2008

Today, BusinessWeek Online published two must-read stories. One, by my colleague Olga Kharif, breaking the news that troubled handset maker Motorola is hard at work developing its own Android-based device.

Writes Olga:
“Motorola has been showing spec sheets and images of the phone to carriers around the world in the past two months and is likely to introduce the handset in the U.S. sometime in the second quarter of 2009, according to people familiar with Motorola’s plans.”

The second story, written by me, explains why the telecom industry won’t be able to escape the wrath of the financial crisis.

Writes me:
“Although most analysts believe the damage won’t be nearly as bad as the last telecom bust—when hundreds of firms went bankrupt, including giant Worldcom—there is growing evidence that the financial crisis is going to depress the debt-heavy telecom industry. To start with, rising capital costs are likely to take a bite out of earnings. In addition, the softening economy will probably crimp demand for such telecom services as land lines, cell phones, and Internet connections.”

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Are Cable Companies Taking Broadband Share from Telecom?

July 30, 2008

This morning, Comcast reported earnings, announcing an 8% increase in second quarter profits and an 11% rise in revenue. The stock is up more than 5% today.

While the nation’s largest cable operator lost basic video subscribers in the quarter, the losses were in line or better than what analysts had expected. Notably, Comcast, also the country’s second largest Internet service provider, showed that it was taking broadband market share from rival phone companies, which reported much weaker broadband gains.

Sanford Bernstein cable bull Craig Moffett estimated in a research note that “Comcast’s 278,000 broadband net additions alone represent 75% of the broadband market reported thus far…. Cable’s huge physical plant advantage–higher capacity and lower cost–is winning the day.”

By contrast, Verizon reported on Monday that it lost 133,000 DSL subscribers, while gaining 187,000 new customers for its fiber optic FiOS Internet service–yielding a net gain of 54,000 customers.

Check out Bernstein’s research note here.

Riverbed CEO: We Can Get Through This

February 18, 2008

Riverbed Technology has enjoyed one of the best-performing tech IPOs of the last two years. Sales of its networking gear that speed the delivery of bandwidth-hogging corporate applications have been soaring. After going out in September 2006 at $9.75, Riverbed shares steadily rose to a high of $52 last October. Since then, the stock has lost its oomph, falling about 60% to around $22 today.

Riverbed CEO Jerry M. Kennelly, a big friendly bear of a man who was a former executive at Inktomi, stopped by the BusinessWeek office last week to talk about his business and why he thinks Riverbed can keep growing through the telecom slowdown.

Will the slowing economy have an impact on the communications business?
I don’t know. There are reasons to be optimistic. We just had our biggest quarter ever.

Then why did your stock get crushed after the Feb. 6 earnings announcement, dropping 11%?
We gave our first ever-guidance. We matched earnings per share guidance for the year and raised our annual revenue guidance. But our first quarter earnings per share target was below guidance. Analysts thought we hired a bunch of sales people. But we just paid out larger sales commissions.

Cisco, the world’s largest maker of networking gear, just spooked the market by lowering its revenue guidance for the year. How is the slowing economy having an impact on your business?
We have a strong pipeline. It was the biggest pipeline in the history of the company. It’s a multiple of our next quarter’s sale goal.

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So you haven’t seen any softness?
We haven’t seen it yet. If we get through the March and June quarter we’ll be in good shape. We’re constructively paranoid and cautiously optimistic.

Why no impact yet?
We sell a product that’s useful to companies in hard economic times. It saves money and makes employees more productive. Compared to Cisco switches and routers, there is a big untapped market for this product. Everyone who needs a router or a switch already has one. They are selling into a mature market. If the economy sneezes they will catch a cold. We can dodge that bullet. We’re new and unsaturated. And it’s a cost-saving product.

What are the cost savings?
They come from consolidating servers in your data center, and because our machines provide greater throughput. We create free bandwidth through our compression technology. That saves money.

You have a lot of customers in the financial services industry, such as Goldman Sachs and Citigroup. Wouldn’t they cut back?
Banks don’t go to zero. They defer $10 million of a $100 million. You just have to make sure you are not in the deferred $10 million. Only 10% of our revenue comes from financial services. We’re very broadly dispersed. We can get through this.

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Top 10 Potential Tech Surprises for 2008

January 16, 2008

Arnie Berman, the Chief Technology Strategist and head of telecom/media/technology research at SG Cowen, is one of the more creative tech analysts working on Wall Street today. I’ve been a long-time fan of his work, going back to when he was at Soundview. On January 14, Berman and the TMT team released their “Top 10 Potential Surprises for 2008.” It’s a really clever report filled with contrarian predictions. Among my favorite:

* Telcos will capture 20% to 25% share of the TV market in the homes they pass with Internet connections, compared to the consensus view of 3% to 5%, converging valuations of telecom and cable companies.

* A slowing economy slams On Demand software providers such as Salesforce.com and Concur, sending shares down as much as 30% to 50%.

* Corporations begin to adopt Google Apps Premium, driving 10% to 20% appreciaiton in the search giant’s stock.

What are your top surprise predictions?

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