Predicting whether the number of Internet users surfing on high-speed broadband connections would grow used to be a no-brainer.
The answer, of course, was an obvious “Yes.”
With so many people plodding along with slow dial-up access, surfing on a connection hundreds of times faster had a strong allure.
And given the amount of people without any Internet access it seemed that the broadband market had plenty of room to stretch.
Now a recent research report from El Segundo-based iSuppli Corp. suggests the trend is slowing.
The report says that broadband subscriber growth will “cool” in the coming years, with 31% growth expected this year, down from 52% growth in 2004.
ISuppli then forecasts broadband growth of 24% in 2006, and 18%, 14% and 12% increases in 2007, 2008 and 2009, respectively.
“Broadband is beginning to reach the saturation level in many of the world’s developed nations, contributing to a slowdown in subscriber growth,” said Steve Rago, principal analyst, networking and optical communications for iSuppli. “However, over the next few years, China and other less-developed countries will generate the bulk of subscriber increases, maintaining the growth of the broadband market. Furthermore, revenues for broadband equipment and services will experience strong growth in the coming years as subscribers begin to buy equipment to access advanced services.”
Orange County growth companies such as Newport Beach-based Conexant Systems Inc. and Irvine-based Broadcom Corp. are somewhat dependent on the growth of broadband.
That said
Conexant Scores Upgrade
Just as the talk about broadband subscriber growth slowing was percolating, Conexant got an upgrade from Wachovia Securities.
The Richmond, Va.-based investment bank raised Conexant shares to “market perform” from “underperform,” saying the company was getting “traction” in the market for high-speed digital subscriber lines.
That traction would help stabilize the company, the report said.
That similar sentiment about Conexant has been heard before on Wall Street. Earlier in June, a recent research note by Credit Suisse First Boston upgraded Conexant shares to “neutral” from “underperform” indicated growth prospects in digital subscriber line adoption.
“We are incrementally more positive on Conexant given the inventory overhang is behind the company, it has growth prospects in both the satellite set-top box and DSL markets, profitability is within sight and valuation is reasonable,” the Credit Suisse report said.
Conexant has been in turnaround mode for some time.
Last month, Conexant reported that its operating loss for the quarter ended April 1 narrowed by more than half from a year earlier, to $61 million.
The chipmaker also said it was able to dwindle down its supply of unsold chips. But the inventory drop came at a cost, as Conexant sold chips for less during the quarter.
More Drives
Seagate Technology, a main competitor of Lake Forest-based Western Digital Corp., recently got a downgrade from Goldman Sachs Group Inc. analyst Laura Conigliaro.
“We are downgrading (Seagate), the company we consider to be the strongest of the disk drive names, as we see signs that the industry is beginning to decelerate on its way to its peak, perhaps more so than we had expected, with 1-inch drives likely to show disappointing growth,” Conigliaro wrote in a note to clients. “The result, we think, is that earnings will either stabilize at current levels or, more likely, come down, even if only slightly.”
Conigliaro’s note is another sign that drive makers are facing tough times. In June, Western Digital got a ding from Merrill Lynch & Co.
A note from Merrill said that a check of buyers and resellers of computer disk drives indicated there is a price war for the computer components.
“We believe that Seagate has dropped its prices the most, as its channel price versus (original equipment manufacturer) price spread was the largest,” Merrill said in the note. “We understand Maxtor and Western Digital are reacting to Seagate’s move.”
Before that, Piper Jaffray & Co. analyst Leslie P. Santiago had cut his recommendation on Western Digital to “market perform” from “outperform.”
“Although we still believe demand for Western Digital’s products more than justifies its current valuation and recent outperformance, we see hurdles to continued outperformance going forward,” Santiago wrote in a note.
The three big disk drive companies had a tough time on Wall Street in June.
Western Digital shares fell about 12%, with Seagate down 15% and Maxtor Corp. off 7%.
