Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Hey, telecom service and equipment providers... nobody likes you! That's the reverberating sentiment on this notably strong up day for the market as service providers Leap Wireless (Nasdaq: LEAP ) and NII Holdings (Nasdaq: NIHD ) , and network connectivity service provider Inteliquent (Nasdaq: IQNT ) all disappointed on the earnings front. On that news, Leap, NII Holdings, and Inteliquent fell as much as 22%, 30%, and 19%, respectively.
So what: For Inteliquent, which missed EPS estimates by $0.07 and guided full-year sales well below Wall Street's forecasts, it blamed slowing sales from telecom companies. Leap Wireless, which operates the Cricket service and is the sixth-largest wireless provider in the nation, reported a nearly 290,000 drop in subscribers as promotional efforts failed miserably. NII Holdings, which provides wireless services in Central and South America, slashed its full-year forecast as unfavorable currency translations, lower average revenue per user, and higher costs associated with its 3G network rollout are crushing its bottom line.
Now what: Yuck... E.T., the telecom industry needs you! Really, what the telecom industry needs is for big telecoms Verizon and AT&T (NYSE: T ) to step up and hold to their guns that they're going to boost capital expenditures. That would be enough to get connectivity equipment providers like Inteliquent back on track. The same can't be said for Leap or NII Holdings, which are losing the battle to larger service providers in their respective regions. Both MetroPCS Communications (NYSE: PCS ) and Leap are struggling with rising costs in the face of big gains for Verizon and AT&T, which offer more diverse plans and, more importantly, give consumer access to a subsidized iPhone. For NII, its aggressive plans to expand in already-saturated South American markets continue to be its downfall.
Personally, I'm one of the few people that is intrigued by the attractive valuations in the telecom sector, but I much prefer equipment providers than service providers. Inteliquent is once again looking attractive, while Leap and NII Holdings deserve to be wrapped up in layers of yellow caution tape.