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2001 Top Ten: Forecasting Follies

Light Reading
News Analysis
Light Reading
12/26/2001

Pity the pundits!

Forecasting technology trends is a tough task in an average year – but it's been an especially hoary task in 2001.

Indeed, as our own predictions show – (see Top 10 Trends, then The Lost Year ) – it's been a year when any speculation on company or industry performance has to be strained through a filter of increasingly bad news [ed.note: or viewed through the bottom of a very large glass of whisky – hic!].

Still, with the benefit of twenty/twenty [proof] hindsight, it's clear some pundits have been better than others at reading the tea leaves.

In the following Top Ten list, Light Reading memorializes the predictive pratfalls of industry analysts, market researchers, vendors – and, sadly, our own journalists.

Here goes, in order, from baddest to worstest [ed.note: Where's that damn bottle?]:

No. 10: Strategies Unlimited on Raman Amplifiers

The market research firm Strategies Unlimited said Raman amps were the key to an optical future (see: Raman Amps: Key to Optical Future). They weren't.

No. 9: Light Reading on ONI

Back in August, things looked peachy for ONI Systems Inc. (Nasdaq: ONIS) and we put 'em high, high on our Top Ten Optical Stocks for 2001. But the punishing downturn felled ONI's share price – down over 80 percent this year (see: 2001 Top Ten: Share Price Collapses).

No. 8: Light Reading on Ellacoya

In our own defense, we issued plenty of caveats about renewing the status of Ellacoya Networks Inc. on Light Reading's Top Ten Private Companies list last March (see Ellacoya Networks). But we were suckers for talk of a high-end, service-layer provisioning switch. Our bad: Talk was all it was. After a run of grim news (see Ellacoya Gets More Funding and Boston Area Startups Slash Jobs), we cast Ellacoya into the Stygian darkness of our Recycling Bin (see Ellacoya), from whose bourne travelers rarely return.

No. 7: Corning on China

Although plenty of other vendors saw the East as a land of optical opportunity, Corning Inc. (NYSE: GLW) was the most bullish on the opportunities in China (see Corning CEO Likes Lasers, China and Corning Buys Lucent China Interests ).

Things didn't go quite according to plan, however, culminating in an analyst report stating that fiber prices worldwide were under pressure and that Corning slashed prices by 50 percent on fiber in China in a deal with the country's Ministry of Telecommunications (see Corning Price Cuts Scrutinized).

Although Corning dissed the analysts in subsequent earnings calls (see Corning Touts China, Rips Analyst and Corning Catches Cold), it finally admitted that pricing pressure lay behind a series of job cuts and plant closures this fall (see Corning Cuts Again).

Parenthetically (before Dear Readers gently point it out), Light Reading wasn't immune to Corning's hyperbole. Back in August, we picked its stock as a "safe bet" (see Corning (NYSE: GLW)). You live and learn. Or not.

No. 6: Lehman on Tellabs

Just after Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) issued an earnings warning (see Tellabs Warns; Shares Recoup Losses), analyst Steve Levy of Lehman Brothers issued a Strong Buy on the company, declaring that it would make good in the end, particularly in light of ongoing demand for its transmission gear and future sales of its 6700 switches (see Lehman's Levy Touts Tellabs).

Subsequently, Tellabs cut its 6700 product (see Tellabs Terminates Its Titan 6700) after undergoing layoffs and rumored contract losses (see Tellabs Cuts 1000 and Tellabs Losing Its Edge?).

Still, Levy's prediction that the company will make good in the end just might be realized: Tellabs finished the year with a key acquisition (see Tellabs to Acquire Ocular) and a financial story that wasn't all bad (see Tellabs Closes Q3).

No. 5: SG Cowen on Nortel

Early last February, Christin Armacost did some quick calculations. By multiplying the revenues of each segment of Nortel Networks Corp. (NYSE/Toronto: NT) by an average revenue/price ratio for a comparable business in the industry at large, she determined that Nortel's stock was undervalued by 40 percent (see Nortel: Less Than the Sum of Its Parts?).

The SG Cowen Securities analyst's errors lay in her assumptions: First, that comparable businesses, such as photonic components, would continue to maintain revenue growth despite mounting evidence that leading vendors were suffering setbacks (see Analysts Fret Over JDSU Growth and Corning Caveats Rain on Earnings Parade). She also assumed Nortel's businesses were performing up to industry par across the board. And she failed to examine the underlying reality of Nortel's many acquisitions, which not only failed to pan out as planned but were bleeding the company under the covers (see Nortel's Nuclear Winter).

No. 4: RHK on Optical Networking

Back in May 2001, RHK Inc. told the world that the optical transport market would reach $21.5 billion this year (see Transport Gear Sales Seen Slowing). By September, it had cut that forecast 68 percent (see RHK Revises Forecast), prompting it to issue new numbers. Apparently, RHK has had a few problems getting the clients who paid for its original research to stump up the cash for their revised numbers (see Market Research Merry-Go-Round?). Can't think why!

No. 3: 360networks on 360networks

Back in April, 360networks Inc. issued a statement that it was not only in a position to pay its debts, but that commercial services would ensure its ongoing ability to do so (see 360networks Is Credit-Worthy). By the end of June, the carrier filed for bankruptcy (see 360networks Calls It Quits) and followed up with a series of bad news announcements (see 360networks Leaves Nasdaq) that have culminated in an ongoing series of credit extensions (see 360networks Gets Extensions). And for their encore... oh, wait, there won't be an encore.

No. 2: Gilder on Corvis.

Late in 2000, plenty of folk were thinking big on Corvis Corp. (Nasdaq: CORV). But as 2001 progressed, a lack of solid customer revenue and ongoing losses made it clear the company's plans weren't unfolding as hoped (see Customer Questions Dog Corvis and Corvis and Williams Sign $300M Deal), despite ongoing product innovation (see Corvis Eliminates EDFAs, Corvis Goes Coast to Coast, and Corvis Offers 3.2-Tbit /s Transport System). By February, Corvis's internal problems were swamped by industry acknowledgement of a full-out market downturn (see Shedding Darwin on Light).

None of this news seemed to reach George Gilder, who proclaimed in a mid-April issue of his Gilder Technology Report that Corvis would be a key driver to a future in which optical bandwidth would be so abundant that fine points like grooming of STS1 Sonet increments would be irrelevant (see Gilder Backs Corvis).

Corvis's ongoing financial woes (see Corvis: No New Customers, Corvis Cuts Back, and Corvis Execs Get Bullish) have been accompanied by an overall slump in development of optical switches (see No Riches From Optical Switches ) and a move by carriers to carve ever more bandwidth out of existing facilities, resulting in Corvis's move to support STS1 grooming (see Corvis Goes Electric). Better luck next time, George!

No. 1: Nortel on Layoffs

Simply put, Nortel's layoff predictions aren't worth much. Way back in January of 2001, the company refused to confirm its initial round of 4,000 layoffs (see Nortel to Cut 4,000 Jobs) and spent a full day releasing different news to different publications. Months later, it was still at it. Outgoing CEO John Roth, who retired in November, claimed in July that the company had reached its limit in personnel cuts (see Has Nortel Hit Bottom?). Subsequently, the company cut 20,000 more jobs (see Nortel Swings Axe, Switches CEOs).

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com

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