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Picking the turn is never easy – and investors have seen their share of false calls recently. But there are growing signs that Europe's telecoms equipment sector is over the worst. Ever since AT&T's announcement of a three-year boost to its planned capital spending on wireless and wireline networks in November, the outlook has been improving. That move – worth an incremental $10-billion (U.S.) at the time, although curbed a little since – spurred copycat action by T-Mobile. Further east, China Mobile has guided to a 50 per cent increase in its 2013 capex, even if its domestic peers look less open-handed. The European equipment sector is up 45 per cent from July lows, and has even outpaced broad regional market markers this year.
The big driver, of course, is mobile-related spend. Sweden's Ericsson says half the world's population will be covered by 4G/LTE networks by 2017, compared with 5 per cent in 2011. This month the Dell'Oro research group calculated that the global wireless RAN market grew 5 per cent in the first quarter of 2013, the second consecutive quarter of year-on-year expansion. While this reflected strong trends in U.S. LTE spend, Europe also managed a 4 per cent first-quarter advance (albeit helped by an easy comparison). There are also some hopes that lower-margin LTE coverage rollouts in the U.S. will peak in 2013's first half, after which telcos could put more emphasis on capacity – and higher-margin hardware.
Not everyone gains equally. The shrinking CDMA market hampers Alcatel-Lucent – also awaiting news of its new boss's strategy – although the group could benefit from any U.S. shift to capacity upgrades. But with a high share of the LTE equipment market, in the U.S. and globally, Ericsson looks well placed. Its shares, on 16 times forward earnings, have had a good run. But they may have further to go if sector shadows are receding.