Browse > Home / Equities, Information Technology / All Eyes on AT&T Earnings

All Eyes on AT&T Earnings

Posted on: July 20, 2008 - Email Article - Printable Version

Santosh Sankar

About the Author:

We have seen the latest earnings out of IT and it has not been pretty. A sector the Street had faith in is starting to slip with Google [GOOG: 328.05, 0.00 (0.00%)] and Microsoft [MSFT: 20.52, 0.00 (0.00%)] posting lackluster earnings that did not impress analysts. Perhaps the greatest IT company out there, IBM [IBM: 86.82, 0.00 (0.00%)] had solid earnings and was continuing to ride high with solid growth. All eyes now are on wireless and communications giant AT&T [T: 28.43, 0.00 (0.00%)].

The consumer slowdown is expected to hit the telecomm giant who was exclusive contracts with Apple [AAPL: 94.58, 0.00 (0.00%)] for it’s blockbuster iPhone. The industry is expected to suffer from customers dropping landlines for cell phones and also moving to use VOIP services provided by cable entities. The wireless market is beginning to be an alternative for landlines as consumers opt for a mobile and flexible offering. The market is also showing signs of saturation as the majority of working Americans (and even 10 year olds) are found texting or even surfing the Internet on their mobile devices. The iPhone should impact Q3 earnings as people put off new purchases until the new iPhone is revealed.

The company has seen its market prices fall heavier than its big rival Verizon [VZ: 32.48, 0.00 (0.00%)] and seeks to sustain the high growth it has enjoyed lately. Investors are bracing for an estimated Q2 EPS of .76 according to WSJ.com while bracing for a noticeable pullback in growth. AT&T will be an interesting indicator of where consumers are headed as the economy slows down and the discretionary device purchases are put off for another day.

I personally think that while AT&T and the whole Telecomm industry is vital to the country, but it has become so dependent on consumer spending that is it open to be hit hard with a recession. A quick review shows us that over 2 million people activated iPhones last year, expect that to slow and see an increase in the churn rate as people scale back and take cover during uncertain times. Management must open other avenues of growth to battle a local slowdown and see where more attractive but profitable services can be offered to customers. This theme can be seen throughout the industry as carriers offer luxurious services ranging from simple phone services to digital cable transmission like Verizon’s FIOS. An earnings recap will be provided on Wednesday after management releases earnings to the public.

-Santosh Sankar

Disclosure: The mutual fund the author is associated with is long AT&T.

Share or Bookmark This Post: