In the wake of last week’s sell-off that cratered Dycom’s stock over concerns of a Google Fiber slowdown, Wells Fargo analysts are reiterating that Google and big telcos remain dedicated long-term to fiber and Dycom should continue to reap the rewards.
The concerns about Google Fiber’s momentum came about last week as reports surfaced about Google Fiber potentially delaying rollouts in cities like San Jose, California, and Portland, Oregon, after the company acquired Webpass. An FCC filing from Google requested permission to test wireless last-mile connectivity to the home using 3.5 GHz airwaves, a plan that presumably could cut into spending on FTTH deployments.
But, with Dycom scheduled to report earnings again in August, Wells Fargo is anticipating the results will “show many of the similar demand drivers we have seen in recent quarters.”
“Doing the last mile wirelessly is not a new concept. The two largest telecom carriers have discussed doing similar moves with 5G and CAF opportunities. DY is doing work for this build in some cases (we think with T/CAF-2 projects),” wrote Wells Fargo analyst Jennifer Fritzsche in a research note. “The irony about this trend, in our view, is that both these carriers have had more dollar spend with DY even while doing wireless local loop (using wireless for last mile). While there remain many questions as to if this initiative will work (and propagation of the spectrum used) one thing is clear to us - fiber connection to the base station is critical to achieve promised speeds.”
Wells Fargo also pointed to Google’s recent earnings call comments about Fiber continuing to be a “huge market opportunity” as further evidence that Google Fiber, and subsequently fiber buildouts as a whole, is not slowing down.
“We view this news on Google looking at different last mile solutions as evidence of its long-term commitment to this initiative. In our view, Google is putting money where it gets most for its buck,” wrote Fritzsche. “Recall, carriers have spoken to the most expensive part of a fiber build as the wiring of the home (DY does not do this) and the fiber drop within last 200 feet or so. While DY does do 'drop' work, talking to some fiber experts we sense the fiber trenching in the area to get to this drop point (more of the focus for DY's work) is much higher margin revenue stream.”