Router specialist Juniper Networks (NASDAQ:JNPR, news, filings) reported earnings after the bell yesterday, and met expectations with revenues of $764M and adjusted earnings of $0.17. Ugly? Definitely, but ugly was entirely expected. The question in everyone's minds is whether the telecom equipment makers have hit bottom. The sector is famously sensitive to economic trends due to the capex intensive nature of tech businesses. When their customers even think about sneezing, equipment vendors are already running a fever. But it works the other way too, the rebound can be similarly powerful.
If telecom is not getting hit *that* hard by the recession, then it may soon be apparent that the capex cutbacks for 2009 carriers began the year with were an overreaction. After AT&T's fine results, there is perhaps a glimmer of hope that this is the case. People are still buying iPhones, they are still streaming movies, and they are still posting stuff to Facebook -- the world has not ended as scheduled by CNBC, yet anyway. If capex were to stay too low relative to traffic growth, it would not be long before the internet came under heavy stress. But if the pinch felt by telecoms doesn't live up to what was feared, then the purse strings will loosen. Especially given that the credit markets are apparently no longer frozen completely solid.
Juniper feels good enough about Q2 to say that sales will be similar to those of Q1, with CEO Kevin Johnson even going as far as to say "The environment seems to be more stable than it was in early Q1". That echos comments in Equinix's earnings call that decisions that had been deferred are now being made. This implies that we might just have found the bottom, or at least a local minimum before the next wave. But next week we will hear from a series of companies that will put that hypothesis to the test: Verizon on Monday; Level 3 and Switch&Data on Tuesday; France Telecom, Qwest, Savvis, and Akamai on Wednesday; then CenturyTel, CBeyond, Neutral Tandem, and Deutsche Telecom on Thursday.
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