Needham & Company: Communications Infrastructure 2011 Review & 2012 Outlook: Looking for Secular Growth In a Likely Challenging Year

Needham & Company: Communications Infrastructure 2011 Review & 2012 Outlook: Looking for Secular Growth In a Likely Challenging Year

Needham analyst, Richard Valera, said, "2011 review: volatile, unpredictable, and mostly disappointing. 2011 was one of the most volatile and unpredictable years we have witnessed in our 10+ years covering communications infrastructure. A number of political and macro economic factors such as persistently high unemployment, U.S. deficit/budget pressures and the EU sovereign debt crisis contributed to this volatility, but unique events such as the flooding in Thailand and the recently suspended bid for T-Mobile (NYSE: DT) by AT&T (NYSE: T) were also factors. Our top picks entering 2011--which sought to play on the growth of mobile broadband—performed poorly, and there was little thematic common ground for the stocks in coverage that did perform well. With many of the same macro issues still confronting markets entering 2012, we would not be surprised to see another volatile and unpredictable year. With that caveat, we continue to see Acme Packet (Nasdaq: APKT) and Broadsoft (Nasdaq: BSFT) as the two stocks in our coverage universe best positioned for secular growth. Of the two, we prefer Acme due to its materially lower forward P/E (~21x vs. ~32x for Broadsoft), which we think embeds relatively modest expectations."

Challenging year for our picks. We had identified two main secular trends entering 2011—the growth of mobile broadband and the transition to IP networks and services. While Acme Packet and Broadsoft are clear plays on the latter, we had shied way from making them top picks due to their valuations. As it turns out, our concerns only proved warranted on one (Acme)—while Broadsoft ended up being the top performer in our group despite finishing the year well off its highs. We instead recommended ADTRAN (Nasdaq: ADTN), as play on the growth of mobile backhaul demands and broadband access in general, and Smith Micro as a play on emergence of LTE “4G” networks."

"Headwinds Likely to Persist in 2012 - 2012 Outlook: headwinds aplenty…looking for secular growth in a flattish cap-ex environment. As we head into 2012, the outlooks for the various subsectors in our communications coverage universe all have headwinds. Commercial wireless infrastructure continues to face near term challenges due to M&A, i.e. AT&T/T-Mobile failed merger fallout, and an inventory overhang created by a dramatic slowdown in LTE deployments following an initial coverage buildout in NA, as well as macro issues in various regions from Western Europe to the Middle East. We would expect this overhang could persist at least through the first quarter, or possibly the first half, of 2012, followed by a gradual resumption in demand as the year progresses...Satellite/defense spending will continue to be challenged by DoD and broader government budget pressures, as well as the draw down of troops from Iraq and Afghanistan."

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Needham Reiterates Buy Rating on Amazon.com (AMZN), Raises Estimates
• Wolfe Research Upgrades Bank of America (BAC) to Outperform, 'Underearning Firms Shouldn’t Trade at a Discount'
• Rivian Automotive Inc (RIVN) PT Lowered to $13 at Needham on "slower EV adoption ahead of the R2 vehicle launch"