Why is dy down today?
Oh I just seen on yhoo,Google delaying some fiber rollout.
GOOGL fiber reported put on hold in several venues while GOOGL explores cheaper wireless connectivity solutions. Article published in Siliconbeat. www.siliconbeat.com/2016/08/10/google-test-wireless-internet…
Hope that works.
Thanks Rob, that Google and its secrets hitting another one of my positions.
I don’t really follow Dycom but 5G is comin quickly. This might be relevant because in Verizon’s last conference call, Verizon CEO Lowell McAdam said he thought of 5G as “wireless fiber”. Here are my notes from that part of the conference call:
The 5G Future. Verizon believes 5G will be here very soon and they are doing everything in their power to be the first to deploy a 5G-capable network. Why? McAdam stated they learned from their experience with 4G LTE, that “being a first mover in developing the technology and nurturing the ecosystem is the best way to ensure that our customers benefit from its capabilities.”
5G will also bring “significant cost reduction” in Fios penetration for Verizon. How? McAdam says 5G is so fast that he thinks of it as “wireless fiber.”
I think of 5G initially as, in effect, Wireless fiber, which is Wireless technology that can provide an enhanced broadband experience that could only previously be delivered with physical fiber to the customer. With Wireless fiber the so called last mile can be a virtual connection, dramatically changing our cost structure.
In answering a question from an analyst, McAdam said that about half the cost of Fios is getting it to the home and the second biggest expense “is the drop”. Hence we can expect a “significant cost reduction” in Fios growth and development going forward.
Because of this Verizon is implementing a One Fiber strategy in Boston and exploring its use in other “forward-looking” cities. The One Fiber strategy is where Verizon creates a “single fiber optic network platform capable of supporting Wireless and Wireline technologies and multiple products.”
Several milestones towards deploying 5G have already been reached including:
Radio specs have been completed with Tech Forum partners. This means testing technical components for wireless fiber services can begin. After fielding a question from an analyst, McAdam added that testing deployments had already begun in Dallas, New Jersey and Virginia, but that thus far testing has mostly been confined to small distances and spaces. Soon testing will begin in field environments on real house developments with vegetation, weather variation, etc.
Fostering development of global ecosystem with OEMs and other carriers
FCC is quickly finalizing spectrum rules
Verizon is currently on track to be the first carrier to deploy a 5G network in the U.S. They believe they will be ready for a fixed commercial wireless fiber launch in 2017. Mobility use will be rolled out “later in the decade.”
Long VZ, GOOGL
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Another case of shoot first and aim later.
We have received a number of questions on recent DY weakness (down 9.9% in last 3 days vs S&P of roughly flat). We believe most of this weakness is due to recent press reports that Alphabet’s (P. Stabler) Google Fiber may be slowing its fiber trenching in some cities (i.e.: at least two in Silicon Valley) and more focused on aerial fiber spend, as well as using wireless last mile to provide coverage. Given Google (which we strongly believe is DY’s large unnamed customer) is important to DY, some are viewing this as an incremental negative data point for forward looking demand. We note that while Google is a large customer for DY, it is less than T, CMCSA and CTL, all of which on their respective Q2 calls reiterated commitment for fiber related spend (note CMCSA’s Q2 cable communications’ capex was $1.9B, and up 12% y/y). Additionally, if Google were to do the last mile wirelessly, they still need fiber to the base station (similar to how some carriers have talked about doing 5G). DY more than participates in fiber to base station spend. We also note that while we assume fiber trenching is indeed higher margin work, DY does do aerial spend work. We have not had a chance to speak to DY management given they are in a Quiet Period but believe its FQ4 quarter will show many of the similar demand drivers we have seen in recent quarters.
My take: If you are following DY you could view this recent price action as a buying opportunity. Google’s change of plans only affects fiber buildouts to the last mile and a rearchitecture based on wireless solutions will require fiber to those antennas and relay structures.
Thanks Matt and Kevin, nice posts. I was thinking the same thing, that Dycom digs the big trenches to data centers and cell towers. If Verizon is using 5G to avoid the last mile to the home, their cell towers will need lots more fiber, but that is one big trench with a big bundled, not a bunch of little stuff to the home.
Maybe people are just spooked and maybe Google Fiber won’t have a large impact, but in a growth stock that has had a nice run up, some people get trigger happy. The volume shows it was the big boys that got trigger happy and I have to respect a high volume plunge below the 50dma. I did take some profits.
If it were to plummet below the 200 I would really be worried from a technical point of view. the 1YPEG will still look great because that is backward looking and the market might be seeing future earnings slowing more than they like.