Wall Street analysts continue to warn that capital expenditure reductions in 2010 by China's telecom providers could impact top line revenue at electronic component suppliers, particularly programmable logic vendors.
Last week, Christopher Danely of JPMorgan Chase & Co. said in a report that the announcement that China Ubicom would reduce capex by 35 percent in 2010coming on the heels of China Mobile's announcement of capex declines for the next three yearswas another negative data point for programmable logic vendors.
Danely estimates that Xilinx and Altera derive 8 and 12 percent of their revenue, respectively, from the China wireless basestation end market.
Danely said it now appears that total capital expenditures from China's three largest telecommunications companies will be down about 16 percent this year compared to 2009. He said he expects 2011 capex by this telecomm companies to decline as well.
Danely's estimate is less severe than analysts at Barclays Capital, who estimate that China's three major telecomm operators will cut capital expenditures by 21 percent this year compared with last.
|The engine of 3G cellular networking growth appears to be cooling in 2010.|
Government-backed spending on building out China's 3G networks was a rare bright spot in 2009 and offered a lifeline to a number of component suppliers. With the build out largely complete, it was inevitable that the telcos would scale back spending. But analysts appear to be troubled by the size of the overall decrease.
Danely, who maintains a "neutral" rating on both Xilinx and Altera, continues to warn of signs of over shipping by the two largest programmable logic vendors. JP Morgan, he said, believes that both companies are at risk of inventory build because their sales are roughly 10 percent above the previous peak, while most of their customers remain roughly 10 percent below the previous peak.