The following wireless companies received upgrades or downgrades from financial and investment firms this week.
- Moody’s Investors Service assigned a B3 rating to the proposed senior secured credit facilities of Virgin Mobile USA with a positive outlook. The rating reflects the challenging operating environment the company faces as U.S. wireless growth slows and carriers seek to increase their penetration of Virgin Mobile’s target markets as well as the company’s high leverage and current lack of free cash flow, said Moody’s.
- Merrill Lynch upgraded its rating on STMicroelectronics from sell to neutral, saying the company’s share price has not yet benefited from a recent upswing in semiconductor share prices and that the company has potential for short-term upside. Merrill Lynch cautioned that it does not believe the semiconductor industry is poised for a dramatic upturn, and that it expects more range-bound trading in the sector for the remainder of the year.
- Bank of America increased its global wireless capex estimate for 2005 to +9.2 percent from +8 percent in part due to higher capex at Telefonica Moviles. The firm said it continues to see strong growth in Russia, slight growth in Europe and good growth in China, as well as moderate growth in the United States and Latin America. However, Bank of America said it continues to favor wireless handset-focused plays like Nokia and Motorola Inc. to wireless infrastructure pure plays like L.M. Ericsson, Andrew Corp., Lucent Technologies Inc. and Nortel.
- Morgan Stanley advised investors to seek out Canadian wireless investments over investments in U.S. wireless companies, saying it is increasingly confident in its growth forecasts for the Canadian wireless market. Morgan Stanley rates Telus, Rogers and BCE at overweight. The company simultaneously raised its 2006 revenue estimate for Telus to $8.4 billion and its price target for the company to $35. In a separate note, Morgan Stanley questioned how much room is left for growth in the U.S. wireless industry. The company said wireless carriers are showing weaker average revenues per users as they target wireless holdouts with lower price points and pointed to approaching levels of saturation in some market segments. Morgan Stanley said carriers lose two subscribers for every three they gain on average, and that carriers like Verizon and Nextel with low churn rates will fare the best in a slower-growth environment.
- UBS said it estimates European telecom capex grew 3 percent year-over-year, driven by wireless capex growth of 14 percent year-over-year. Wireline capex was flat. In addition, UBS noted Lucent Technologies Inc. may benefit from Indian regulatory recommendations that are likely to reduce mobile service costs, increase coverage and kick-start third-generation services. Lucent is a key CDMA supplier in the country.
- Robert W. Baird said its latest evaluations of the semiconductor market indicate mobile-phone chipset companies are designing products around NAND, almost entirely displacing NOR content. This trend could negatively affect Intel’s flash business. The first NAND-based phones should hit the market early next year, said Baird.
- Pacific Growth Equities upgraded its rating on Sonus Networks, citing continuing strong order flow from companies including Global Crossing, Cingular and Motorola.
- Merrill Lynch raised its rating on Ciena from sell to neutral.
