A classic example of this–and it relates strongly to the telcos–is Intel Corporation (NASDAQ:INTC). The company does face criticism for not being prepared for the shift to tablets and mobiles, coming late to the LTE party and being too optimistic over a potential demand pull from Windows 8. It’s easy to criticize, but it’s a lot harder to predict these changes. Anyone who scoffs and says they can should show me how they invested in these trades, because that is what really matters here.
So just as Intel Corporation (NASDAQ:INTC) found itself structured for a world and cycle that didn’t look like it had before, so the telco service providers have also seen the same challenges. It’s certainly true that they have been pushing out these services (Verizon Communications Inc. (NYSE:VZ) started investing in LTE over five years ago), but when AT&T Inc. (NYSE:T) cuts its capital spending forecast by around $4 billion (or 9%) for 2014-15, it is obvious that something has changed.
The reasons given for the cut are that it got better deployment from LTE than it had previously expected. Its much vaunted Project VIP includes a commitment to expanding 4G/LTE to 300 million points of presence (POPs) by the end of 2014. The good news is that it expects to achieve 90% of this figure by the end of 2013. The bad news is (from the suppliers point of view) that this greater efficiency is lessening the necessity for spending. It is also shifting spending into newer technologies and away from legacy systems. Again not good for the suppliers.
Where Next for Telco Spending?
Unfortunately it looks like a similar year to 2012 for the telco suppliers: some hope in the first half which then evaporates into a weaker second half. Some of the weakness in Q1 will possibly turn out to be temporary, but when there doesn’t appear to be a major stimulus for increased spending by Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) is cutting future projects it is hard to be too optimistic.
On a more positive note the increasing adoption of newer technologies like 4G/LTE, high bandwidth capability and corporate mobility solutions will surely spur other telcos to invest in them, so the focus on investing in the sector in 2013 must be in these areas. The problem is that the telco suppliers are not constructed to surgically target these areas alone. In conclusion If you are bullish on the telco sector it probably makes more sense to stick with investing in the carriers right now. The floodgates of telco spending aren’t open yet.
The article Why This Telco Stock’s Outlook Was Disappointing originally appeared on Fool.com and is written by .
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