There’s some good news and bad news in store for telecom suppliers in 2016 – capex spending by U.S. carriers is expected to rise, but not by much.
“For 2016, our forecast call for annual U.S capex spending growing 3% year-over-year, with Telcos (wireline + wireless) up 2%, Cable TV up 1% and Web Scale expenditures up 6%,” Raymond James analyst Simon Leopold forecasted in a research note issued last week.
This year looks a bit more challenging outside the U.S., amid anticipated weaker spending from China (down 11%) and Europe (down 7%).
“We think that U.S. telcos will continue to focus on expanding wireless capacity, as evidenced by the premiums paid for Advanced Wireless Services (AWS) spectrum,” he noted.
As for the cable vertical, “the advent of DOCSIS 3.1, and the industry trend towards embracing hybrid architectures with the ultimate goal of transitioning to an all IP video distribution could increase capex allocations to networking,” Leopold said.
Operators such as Comcast and Liberty Global are expected to be among the early-movers with DOCSIS 3.1 following last week’s CableLabs certifications of D3.1 models from five suppliers – Askey Computer, Castlenet, Netgear, Technicolor and Ubee Interactive.
Leopold also served up his top picks for 2016: Cisco Systems (thanks in part to its diversified portfolio, strong balance sheet and cash-generating ability); Arris (despite a “misperception regarding changes to video services”); and Applied Optoelectronics (“offers the highest potential reward for risk tolerant investors).
Suppliers have yet to report Q4 numbers, but Leopold said he expects calendar 2015 telco spending to drop 3% year-over-year, with cable TV capex growing 6% and web scale data center rising 10%.