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Auriga on Communications Semiconductors: Carrier Spending Improving Gradually; May Still Disappoint Investors

March 15, 2012 10:37 AM EDT Send to a Friend
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Auriga on Communications Semiconductors: Carrier Spending Improving Gradually; May Still Disappoint Investors

Auriga analyst said, "Our industry conversations suggest a gradually improving carrier spending environment for 2012, which is consistent with cautious comments made by multiple communications equipment and semiconductor companies. Based on current trends, we expect global carrier capex to increase 2%-4% in 2012; we are not expecting a sudden uptick in 2H12. In our view, this increase is consistent with longer term carrier spending patterns. Even though sharp growth in mobile data rates has left some investors expecting a sharper uptick in carrier spending, we expect carrier capex to continue growing at a low-mid single digit CAGR as increases in data demand is largely met by Moore's law and adoption of other efficient technologies like WiFi offload, small cells, packet/optical convergence around Ethernet/IP/MPLS networks, data throttling and compression. In this modest spending growth environment, we favor secular growth stories like Cavium (Nasdaq: CAVM)(Buy) and EZchip (Nasdaq: EZCH)(Buy) which apart from their exposure to faster growing segments, can also grow rapidly through entry into new markets (small cells for CAVM) and/or market share gains (edge routers for EZCH)..."




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