Wireless Surge Brightens Verizon View

On balance, Verizon (VZ Quote) sounded surprisingly chirpy to its network-equipment suppliers Tuesday.

Sure, the giant New York telco dampened some spirits by trimming its second-half network-spending plan. But analysts were inclined to look on the bright side, pointing to the company's surprisingly robust forecast for wireless subscriber growth and the solid double-digit percentage rise in its capital budget even after Tuesday's belt-tightening. Verizon slipped 5%, dropping $1.65 to $33.06.

So if the outlook remains cloudy for the nation's largest telco, it's starting to clear a bit for the gearmakers who count themselves among its leading suppliers. Verizon said Tuesday that erosion in its local phone business will force it to trim about $500 million from 2003 core network improvement plans.

Meanwhile, though, the wireless business continued its winning streak. And with less than four months remaining in the year, the company is still on track to spend 19% more on conventional gear and 15% more on wireless equipment in the second half than it did in the first half of 2003.

Analysts quickly listed their winners and losers. Clearly, the main victims of Verizon's cuts were old-line phone switch suppliers such as Lucent (LU Quote) and Tellabs (TLAB Quote).

But Verizon left its wireless budget untouched, which is good news for Nortel (NT Quote) and Lucent's mobility business. According to Lehman Brothers, three-quarters of its sales to Verizon are wireless gear. As TheStreet.com reported earlier this month, Lucent is in line for a large wireless contract renewal with Verizon.

"You really don't like to see capex cuts when you are expecting a big rebound," says RBC Capital Markets analyst John Wilson. But even if Verizon comes in below the new range, the equipment makers "are likely to have a robust fourth quarter," says Wilson. He has a sell rating on most of the equipment companies except for Nortel, on which he has a neutral rating, and Alcatel (ALA Quote), which he rates buy.