- Companies complete upgrades, switch to less-costly networking
- Network gearmakers getting pinched as equipment budgets shrink
AT&T Inc., Verizon Communications Inc., T-Mobile US Inc. and Sprint Corp. are wrapping up big wireless technology upgrades and moving toward cheaper software-driven networks, which could extend a 2015 spending slowdown into next year.
After two years of peak spending, the big carriers cut capital expenses for items like new equipment and buildings in 2015 by 8.1 percent, according to analysts’ estimates compiled by Bloomberg. And phone company executives have suggested the belt tightening isn’t over.
AT&T Chief Executive Officer Randall Stephenson told investors Tuesday that “there’s going to be a continual downward pressure on our capital spending.” Verizon Chief Financial Officer Fran Shammo said last week that capital outlay in 2016 will be “in the neighborhood of $17.5 billion,” compared with a $17.5 billion to $18 billion range for 2015. In October, Sprint said it is targeting a $500 million cut in equipment spending next year.
The shift in spending away from conventional telephone switching and Internet-routing hardware could add to the challenges facing gearmakers like Alcatel-Lucent and Cisco Systems Inc., which have branched into newer technologies though still book revenue from old-line equipment sales.
The spending trend could benefit companies like Brocade Communications Systems Inc., a cloud-switching shop, and closely held Affirmed Networks Inc., a supplier of software-defined wireless gear. Both companies develop automated, high-capacity products designed to offer cheaper alternatives to legacy hardware systems.
Even next-generation networking gearmakers like Ciena Corp. might be vulnerable in a penny-pinching environment. Ciena, which supplies equipment to Verizon and AT&T, saw shares fall about 20 percent in the past week after giving a 2016 sales forecast that was below analysts’ estimates.