網(wǎng)絡(luò)設(shè)備Q4盈利預(yù)覽

1、Networking Equipment4Q Earnings Preview: Buyers of CSCO, ST, and ANET into Print; Cautious on GLWNorth America Equity Research18 January 2019We are previewing calendar 4Q18 earnings for the 11 companies in our coverageuniverse of Networking Equipment/IT Hardware and believe that most companies are w

2、ell poised to exceed buy-side expectations that been lowered over the last months led by macro growth concerns. We find our FY19 earnings estimates for most of our coverage largely unchanged despite an average -4% decline in the share price since calendar 3Q18 earnings. Despite recent growth concern

3、s, we do not see a change in the positive capex environment the three primary customer groups in 2019, including service provider customers, cloud customers, and enterprisesdriving our positive outlook for Networking Equipment companies in 2019. Additionally, we see optionality for investors in US N

4、etworking Equipment companies to participate potential share gains following increased scrutiny of Huawei equipment. While there are some near-term concerns that we are monitoring, including timing of a slowdown in cloud to digest recently built infrastructure before a reacceleration, and impact of

5、the ongoing government shutdown, which might pose a headwind calendar 1Q19 guidance/earnings, we see the impacts as temporary and would be buyers weakness either. Our top picks going into calendar 4Q earnings include Cisco (OW rated), Sensata (OW rated), and Arista (Neutral rated). Relative to the r

6、est of our coverage, we see greater headwinds on the horizon Corning in 2019 than appreciated investors and would cautious on Corning (Neutral rated) shares going into 4Q18earnings.Outlined below are our expectations on Cisco, Sensata, and Arista, which we positive on heading into calendar 4Q18earni

7、ngs.Cisco (CSCO, OW): Product momentum to be sustained in the coming quarters and outperform relative to investor expectations for a slowdown. We positive on shares of Cisco heading into its F2Q19 earnings (Jan-end) led the sustainability of the recently demonstrated product momentum underappreciate

8、d by investors in our view. Our $12.4 bn forecast for F2Q19 implies adjusted top-line growth of +6.5% excluding divested service provider business, reflects sustainable strong top-line growth following F1Q19s +7.7% revenue growth. While we are forecasting F1Q19 revenues of $12.4 bn and EPS $0.72, bo

9、th in line with sell-side consensus estimates (revenue of $12.4 bn and EPS $0.72), we both these estimates are ahead buy-side expectations, which have increasingly been pricing in a slowdown in the macro over the last few months (including a -5% decline in the CSCO share price since its reported F1Q

10、19 earnings). We believe the current NTM P/E of 14.1x and NTM P/E ex-cash of 12.8x imply that investors are expecting a strong moderation in the enterprise spending environment over the next 12 months relative to ourexpectations.Cisco (CSCO, OW): Optionality from potential gains from scrutiny on Hua

11、wei. While among our coverage companies, with 20% of revenues the government has the highest risk exposure to a prolonged government shutdown, we would any potential near-term headwinds in the coming quarters as temporary and would be buyers of the stock. Additionally, Cisco is particularly well pos

12、itioned to benefit the additional scrutiny on Huawei in the routing, campus, and data center switching markets HYPERLINK /research/content/GPS-2872217-0 report here), offering further upside toinvestors.Telecom & Networking Equipment/IT HardwareSamik Chatterjee, CFA AC(1-212) 622 0798 HYPERLINK mail

13、to:samik.x.chatterjee samik.x.chatterjeeJ.P. Morgan Securities LLCJoseph Cardoso(1-212) 622-9036 HYPERLINK mailto:joseph.cardoso joseph.cardosoJ.P. Morgan Securities LLCBharat Daryani(91-22) 6157 3057 HYPERLINK mailto:bharat.daryani bharat.daryaniJ.P. Morgan India Private LimitedCompanies covered in

14、 this Companies covered in this calendar 4Q18 earnings preview include ANET, CIEN, COMM, CSCO, FFIV, GLW, INFN, JNPR, LITE, ST, and VIAVSee page 49 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies cover

15、ed in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK / Sensata (ST, OW): Content

16、growth and diversification to drive resilience against softer global automotive production. Although Sensata shares risen+7% in the past month heading into 4Q18 earnings, it has still only traded roughly in line with other automotive suppliers despite greater resilience of earnings to broader automo

17、tive industry trends through end-market diversification as well as a leaner fixed cost structure. We believe the increasing content growth opportunity in autos, including growing leverage to secular industry themes such as electrification (through GIGAVAC acquisition), will continue to drive earning

18、s outperformance relative to underlying industry trends and should be a catalyst for a re-rating in the share to our target multiple of 13.5x P/E relative to current NTM trading multiple of 11.4x. We are forecasting 4Q18 revenue of $860 mn (vs. consensus of $868 mn) and EPS of $0.99 (same as consens

19、us), which implies that Sensata will meet its target of 7% organic revenue growth in FY18materially outperforming most automotive suppliers. Relative to guidance, we believe Sensata is well placed to meet its long- term targets of 4-6% revenue CAGR in 2019 as well, which would meet sell-side estimat

20、es, in contrast to disappointing guides by most automotive suppliers at the recently concluded Detroit Auto Show. See detailed reports from JPM automotive analyst, Ryan Brinkman, for details: HYPERLINK /research/content/GPS-2884420-0 Detroit Auto Show Day 1 Takeaways and HYPERLINK /research/content/

21、GPS-2885324-0 Detroit Auto Show Day 2 Takeaways.Arista (ANET, N): All eyes the 1Q19 guide. Heading into 4Q18 earnings, investors eyes for Arista will be focused on the 1Q19 guide given concerns relative to the slowdown in the cloud capex growthlargely a function of moderation from strong growth leve

22、ls, as well as near-term concerns on cloud capex in 1H19 driven by timing of digestion of recently built infrastructure before ramping in 2H19. We are forecasting 1Q19 of $584 mn (vs. consensus $589 mn), implying -1% q/q deceleration 4Q18 JPMe (including a 3% price increase to offset tariffs taken l

23、ate last on some SKUs), relative to the average increase +1.6% q/q over the last couple years. We expect Arista to guide for greater than+20% revenue growth for 1Q19, which admittedly is potentially softer than sell- side consensus +24% consensus +25% but we believe it to be ahead of investor expect

24、ations. Relative to 4Q18, we forecast revenues $590 mn consensus $592 mn) and EPS of $2.10 (vs. consensus of$2.07).Outlined below is our expectation on Corning, which we are more cautious on heading into calendar 4Q18 earnings.Corning (GLW, N): More headwinds relative to remainder of the coverage un

25、iverse; we are cautious on guidance for Display. While we believe 4Q18 earnings are likely going to be in line with expectations (revenues of $3.0 bn consensus $3.0 bn, and EPS $0.57 vs consensus $0.57), we see a greater degree of headwinds for Corning in 2019 relative to the remainder of our covera

26、ge. The three primary headwinds include: 1) Decline in retail TV demand in China: China accounts for roughly one-quarter of global TV shipments, and retail was down mid single digits y/y in November ahead of a further deceleration starting in December. Were the weakness in retail TV demand in China

27、to continue, we believe the combination of modest volume gains globally and modest price declines on a y/y basis could muted 1Q growth guidance in Display. 2) Slowdown in the smartphone market: With increasing penetration of Gorilla Glass in the high-end smartphone market, revenue growth trends in a

28、re likely to be more correlated to the overall market trends where our latest forecast is for a challenging 2019 with a -5.5% y/y decline in smartphone shipments globally. 3) Weaker automotive production: While adoption of emission contenton light vehicles remains a key content driver in the Environ

29、mental Technologies group, we are seeing weakening automotive production trends in key markets (including China). Overall, the combination of the above headwinds drives our cautious stance on Corning ahead of 1Q19 guidance. We are modestly trimming our earnings estimates for both 2019 and 2020 to ac

30、count for the above headwinds.We briefly outline below our expectations for the remainder of our coverage heading into earnings (in order of market cap).Juniper (JNPR, UW): While structural headwinds continue, to revenue growth could drive near-term positive sentiment. We continue to rate Juniper Un

31、derweight largely on account of below-average medium-term top-line growth outlook and below-average medium-term earnings growth outlook as the company continues to navigate through headwinds led by customer preference for less feature- rich and expensive routers. While we do not see an abatement in

32、this structural headwind, with service provider customers likely evaluating their architectures ahead of investing in 5G-related infrastructure, we do see near-term opportunities for improvement in investor sentiment on JNPR shares as the company returns to revenue growth (albeit modest). We forecas

33、t 4Q18 revenues of $1,235 mn (-0.3% y/y vs. consensus $1,225 mn) and EPS of $0.59 (vs. consensus $0.57). For 1Q19, we forecast revenues of $1,091 mn (+0.7% y/y) and EPS of$0.40.F5 Networks OW): Expect continued secular software transformation coupled with product momentum cloud. FFIV shares remain f

34、avorably positioned heading into F1Q19 earnings, given the recent share price performance, as the shares now trade at 14.5x NTM P/E, reflecting investor concerns relative to the macro growth outlook. We are forecasting F1Q19 revenues to grow+4.8% y/y to $548 mn vs. consensus $547 mn (led continued s

35、trong double- digit growth in software ADC sales) and $2.58 (consensus $2.54). We believe the mid-single-digit top-line growth, following +4.6% increase in (Sep-end) will reinforce investor confidence in the top-line momentum even while transforming the business from being focused on physical ADC ap

36、pliances to being focused on software/virtual ADCs. Further, we are positive on F5s product momentum led by the ramp of Cloud Edition products and the introduction of F5-as- a-service and cloud native products in1H19.Ciena (CIEN, OW): Set up admittedly difficult following a +79% share price increase

37、 since start of 2018. We expect Ciena to deliver F1Q19 (Jan-end) earnings slightly ahead of consensus expectations and forecast revenues of $762 mn and EPS of $0.32 (vs. consensus $760 mn and $0.30, respectively). However, we believe buy-side investor expectations are likely materially ahead of sell

38、-side consensus, given the +79% increase in the share price since the start 2018 and an increase in the share price since F4Q18 earnings (relative to the average stock in our coverage up +1% and down -5%, respectively). Led by the strong increase in the share price, the shares now trade at 18.5x P/E

39、 to the long-term historical P/E of 15.7x. While we see earnings upside to current consensus expectations outsized share gains, we would be wary of volatility in the share price given the exceptional share price increase over the last 12months.Ciena (CIEN, OW): Bull case for Ciena continues to prese

40、nt upside despite strong share price increase. Despite the strong share price increase, we continue to see material upside to current medium-term consensus earnings expectations for thecompany a combination of: 1) organic market share wins driven by the continued leadership in technology and executi

41、on; 2) conquest market share wins from primary American competitor, Infinera, following its announcement of a challenging three-year integration of recently acquired Coriant, which we believe is likely to drive uncertainty customers; and 3) potential market share gains from the largest optical playe

42、r, Huawei, following increased scrutiny the presence of its equipment in networks multiple countries. To put the upside in context, relative to Cienas global market share 14% in optical systems, Huawei, Infinera, and Coriant combined have a market share 37% of the $14 bn global optical market; 1% sh

43、are gain Ciena implies 5% upside to top-line growth. In other words, if we consider that a 15.7x P/E multiple is appropriate Ciena, investors are already pricing in 5% earnings upside to FY20E consensus EPS of $2.23 (vs. JPMe 12% aboveconsensus).CommScope (COMM, Not Rated): Focus likely to be on reb

44、uilding investor confidence with consistent execution. While investors are likely to remain focused on the ARRIS acquisition (expected to in 1H19), we believe CommScope management will be in the meantime focused on rebuilding investor confidence. Following two significant revisions to full-year 2018

45、 profit expectations the stand-alone business) the course of the last year, investors have questioned the visibility into the demand environment and earnings that management is able to provide, which will be a key area that the management team will be looking to address ahead closing the ARRIS trans

46、action. We expect management to issue a conservative guide and work toward delivering to the guidance to rebuild credibility with investors. We are forecasting 4Q18 revenues of $1.04 bn (implying a modest y/y revenue decline for FY18 and in line with consensus) and EPS $0.37 (same asconsensus).Lumen

47、tum (LITE, N): Sentiment 3D sensing to overwhelm, offsetting positives from Oclaro acquisition and robust telecom businesses. remains positioned in its non-3D sensing businesses led 5G-related investments and strong demand telecom products, including ROADMs. completion of the Oclaro acquisition incr

48、eases the combined companys leverage to 5G, setting up a landscape for businesses accounting for 60% of revenues on a pro forma basis. However, the tailwinds on a majority of the business are likely to be offset by the combination of headwinds relative to the 3D sensing group (20% of pro forma reven

49、ue) stemming a challenging for the smartphone industry, and headwinds to the Lasers group a slowdown in industrial in China (10% revenue). We are trimming our revenue forecast F2Q19 (Dec- end) to $335 mn (from $348 mn prior), at the low end the already lowered guidance range $335-$355 mn issued in N

50、ovember, and EPS to $1.15 $1.25 prior and relative to updated guidance of $1.15-1.34.Viavi (VIAV, UW): Expect consistent execution and in-line earnings. Viavi continues to benefit from strong demand 5G lab equipment equipment manufacturers and operators and is positioned to benefit from strong deman

51、d field test equipment the equipment manufacturers transition lab testing to field tests. We forecast F2Q19 (Dec-end) revenues of $281 mn, line consensus, and EPS $0.16 vs. consensus $0.16. In closely watched metrics, we expect 3D sensing revenues of $24 mn in F2Q19, with the company track to delive

52、r $60 mn revenues from 3D sensing inFY19.Infinera (INFN, N): Favorable setup on low expectations; concerns relative Coriant integration will limit upside. Infinera stands to the industry tailwinds in the optical transport market, which could modest upside to 4Q18 expectations and drive share price u

53、pside given low expectations from investors. We forecast revenues of $332 mn vs. consensus of $325 mn and the guidance range of$315-335 mn and gross margins of 30.4% against consensus of 30.1% and guidance of 28-32%. However, at the same time investors will be monitoring for longer term impact from

54、the customer delays that were cited by the firm on the last earnings call and looking for indications of share loss. Additionally, 4Q18 will be the first quarter reported by the company including Coriant, and investors will focus on early signs of delivery of synergies for the combined company. With

55、 the success of the Coriant acquisition largely predicated on the vertical integration of the technology platforms of the two companies, which is expected to commence in 2020, we believe investors will continue to harbor concerns relative to the integration, limiting share price upside if 4Q18 earni

56、ngs to track ahead expectation. We are lowering our medium-term earnings outlook, led by modest expectations for gross margin improvement, and lower our December price target to $5 (vs. $6 prior) on our lowerestimates.JPM Estimates Relative to Consensus Heading into Calendar 4Q18 Earnings As shown i

57、n HYPERLINK l _bookmark0 Table 1, we find that JPMs EPS estimates for calendar 4Q18 earnings are in line or above consensus across most of the companies within our coverage. Exceptions include Ciena, in which we are positioned materially above consensus.Table 1: Networking Equipment/IT Hardware JPMe

58、 vs. Consensus$ per ShareCompanyTickerJPMeCalendar 4Q18ConsensusVarianceJPMeFiscal 2019ConsensusVarianceAristaANET$2.10$2.072%$8.50$8.87-4%CienaCIEN$0.32$0.309%$2.00$1.7713%CiscoCSCO$0.72$0.720%$3.05$3.050%CommscopeCOMM$0.37$0.371%$2.15$2.131%CorningGLW$0.57$0.57-1%$2.05$2.07-1%F5 NetworksFFIV$2.58$

59、2.542%$10.75$10.671%InfineraINFN($0.26)($0.27)NA($0.34)($0.34)NAJuniper NetworksJNPR$0.59$0.574%$2.00$2.04-2%LumentumLITE$1.15$1.150%$4.45$4.401%SensataST$0.99$0.990%$4.20$4.073%ViaviVIAV$0.16$0.16-1%$0.58$0.60-2%Source: J.P. Morgan estimates, Bloomberg.Note: Ciena and Cisco have quarter ending Janu

60、ary.Share Price Performances Heading into Calendar 4Q18 EarningsIn terms of share price performance for calendar 2018, we note that Ciena has outperformed the group in 2018 and since 3Q18 earnings, while Arista and Lumentum have underperformed in both periods.Figure 1: Share Price Performance in 201