outperformance in Europe will come from niche markets in 2003, suggests SSSB research
Signs of health in the European telecommunications industries are beginning to emerge, according to research by investment bank SchrodersalomonSmithBarney.
One segment of the market looking bouyant going into 2003 is the communications test and measurement area. It is in niche markets such as this that fund managers must look in order to outperform their peers, according to SSSB.
Other areas of the technology and telecommunications sectors look rather less promising, however, and the investment bank's European technology team said the software rally that has acted as a boost to technology funds is now overdone.
Looking more closely at IT services and software companies, analyst Marc Geall said: 'Third-quarter 2002 results demonstrated mixed trading performance across global software names, with European earnings continuing to be downgraded. With fourth-quarter expectations still challenging, and in our view valuations no longer discounting the fourth-quarter risk, we urge caution towards the software sector.'
Within the sector, Geall recommends more defensive positions such as Dassault Systems and SAP and Sage.
SSSB expects the testing and measurement market to grow slowly in 2003, driven by wireless and a gradual improvement in the outlook for wireline equipment, mainly driven by data networking sales into the enterprise market.
Geall said: 'Communications test market drivers. The key driver for communications test is carrier and enterprise network capex. These capex-spending rates generally encapsulate both new network-based equipment and testing products used for network maintenance.
'The capex budgets not only determine the amount of field service and monitoring gear and networking equipment sold into a network, they also set the tone of the sales outlook for equipment makers, influencing their appetite for research & development and network equipment manufacturing test equipment.
'We are expecting telecom capital spending budgets to stabilise in 2003 and enterprise budgets to show around 10% growth, suggesting year-on-year growth in the test and measurement industry may not turn positive until mid-2003.'
Test functions include research and development, equipment manufacturing, field service and network monitoring. End markets include traditional telecommunications, data communications, wireless networking and optical networking.
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