NEW YORK-Component manufacturers like Spectrian Corp. are the ones to watch for a sneak preview of developments in deployment of digital cellular and personal communications services, according to Eric C. Buck, senior telecommunications analyst for Donaldson, Lufkin & Jenrette Securities Corp., New York.
A leading supplier of ultralinear power amplifiers, Spectrian, headquartered in Mountain View, Calif., has seen its stock take a beating in recent weeks, trading well below its 52-week high of $51.25 per share. The stock closed Thursday at $18.00.
“For some time, we have been concerned that expectations of substantial gains in cellular infrastructure spending in the second half of 1996 would prove overly optimistic in terms of both timing and scope,” Buck and Parke Logan wrote in a recent research bulletin. “The deployment of digital technologies, both for cellular and PCS applications, is taking longer than many observers had anticipated, causing a slippage in wireless-related sales.”
Although Spectrian is a leading outside manufacturer and supplier of the amplifiers used to boost low-powered radio signals, other companies in this niche also are feeling the pinch, Buck said. “Microwave Power Devices, Hewlett-Packard Co., Avantek and AML, all public companies, and Milcom, a private company, are having similar problems,” he said.
Because analog power amplifiers are simpler and easier to manufacture than their digital counterparts, wireless telecommunications equipment manufacturers were more likely to produce them in-house. However, there is speculation that more digital power amplifiers will be outsourced, Buck said.
Many of these outside components companies are manufacturers of specialized products for military use that now are diversifying into non-military applications, he said.
Slowdowns in the run rates of outside power amplifier manufacturers become apparent more quickly to industry analysts than is the case when telecommunications equipment vendors make these components themselves and supply them as part of a total package. Equipment vendors typically have contracts with wireless telecommunications carriers in which minimum coverage and customer activation levels are required before the vendors can take these results into account on their financial statements, he said.
“This is less of an issue at the components level, and that’s the reason why companies like Spectrian are good advance indicators,” Buck said.
