SAN FRANCISCOThe announcement by China Mobile Ltd. Thursday (March 18) that its 2010 capital expenditures would decline 5 percent compared with last year is bad news for programmable logic suppliers Xilinx Inc. and Altera Corp, which derive about 10 percent of their revenue from China's basestation market, a Wall Street analyst said Friday.
China Mobile (Hong Kong) plans to spend about $18 billion on capital expenditures in 2010, down from $18.9 billion in 2009, according to Christopher Danely, an analyst at JPMorgan Chase & Co. The updated figure is well below China Mobile's initial 2010 capex estimate of $19.2 billion, Danely said in a report circulated Friday. The wireless carrier, which claims greater than 70 percent market share in China, also said it expects capex to further decline 20 percent in 2011 and another 18 percent in 2012, according to Danely.
"We believe the China basestation end market represents roughly 8 percent of total Xilinx revenue and 12 percent of total Altera revenue," Danely wrote. "As one of China's largest telcos, we believe China Mobile's CapEx reduction could negatively impact both Xilinx and Altera revenue during 2010 and beyond."
Danely also reiterated his previous warning that Xilinx and Altera may be over-shipping and are at risk of inventory build. The companies' sales are running roughly 10 percent above their previous peak, while revenue at most of their customers should still be roughly 10 percent below the previous peak, Danely said.
JP Morgan maintains a rating of "neutral" on both Xilinx' and Altera's stocks.