Buckling Down for 2005

Like the odometer on your Dad's station wagon, the number for the date of the telecom recovery keeps rolling forward. As 2002 ends, venture capitalists and even startups are now conceding that the long-hoped-for recovery now appears as distant as 2005.

"People are saying 2005 is when the market's going to come back, from a carrier viewpoint," said Wes Raffel, partner with Advanced Technology Ventures (ATV).

Speaking at the Electronicast OADM & Advanced Photonic Communication Networks Conference in San Mateo, Calif., Raffel and other VCs said their portfolio companies are setting up for the long, long term.

The award for the biggest numbers tossed about goes to Ray Conley of Oak Hill Capital Partners, talking about Terabeam Corp.. "We've got the burn rate managed on that one to last to 2006 or 2007," he said.

Startups are getting more glum as well. Polychromix Inc.'s business plan calls for a trickle of revenue in 2004 but no serious business until the following year. CEO Brian Mitchell said it's time to drop the widely held hope of a mid-2003 recovery. "By now, we think we would be seeing some substantial signs of that."

Indeed, all indications lately have pointed to a flat 2003 -- or worse (see Carrier Spending Hopes Dim and Bludgeoned Budgets).

Of course, if you're a startup, this poses several problems, one of which involves the staff. It might seem sensible to plan for a recovery that is four years away, but what should your employees do in the meantime? The VCs acknowledged that it might be tough to get people motivated for all-nighters and weekend work, especially if long hours are expected to persist for years to come.

Executives will have to "ratchet down [their] own expectations" of employee enthusiasm, Raffel said. On the plus side, he noted that many employees will be grateful just to have a job in optical networking, and they'll be satisfied "if they're working with people they like and they can see light at the end of the tunnel."

Moreover, given that the telecom boom is long gone, it's doubtful that employees are looking to cash out quickly.

"If people are anxious for something big to happen [right away], they're in the wrong place," Conley said.

— Craig Matsumoto, Senior Editor, Light Reading

Movers and shakers from more than 100 companies will be speaking at LightSpeed Europe. Check it out at http://www.lightspeedeurope.com.

photonfred 12/4/2012 | 9:21:29 PM
re: Buckling Down for 2005 The Telcom recovery in capital spending will come when there are sufficient revenue generating service apps, and demand for those apps, to work off the overcapacity in Tier 1, 2 ,3 NSPs.

Then and only then will we see restored capital spending. Anyone who thinks they can forecast this is only able to pick a far off date which offers less visibility into spending patterns than those dates near at hand. I call that the benefit of quesswork in the face of foggy visibility, nothing more.
captain kennedy 12/4/2012 | 9:21:27 PM
re: Buckling Down for 2005 Is there real evidence for recovery in '05 or does this simply mean that no recovery is certain in '04, and no-one has a clue beyond that?
drone387 12/4/2012 | 9:21:26 PM
re: Buckling Down for 2005 05 says that budgets for 2003 are set in concrete and are flat/down. Business in 2003 doesn't look to improve so budgets for 2004 will be flat/down. A business upswing in 2004 means budgets for 2005 will be up and "prosperity" will trickle down to the equipment vendors. It means that you're toast if you don't have the resources to develop the next generation of products for the 2005 "upswing" during the current bust. (I don't see Cisco showing up in 2005 selling 2002 technology.) If the VCs are confident in the above happening, the purse strings should start loosening up for new startups next year to catch the new wave. More likely, we'll get a repeat of the money flowing after the recovery is confirmed leading to a deluge of new products right after it peaks. Personally, it means extending the current matriculation at the institute of higher obtusification into obtaining that vaunted Piled higher & Deeper.
BobbyMax 12/4/2012 | 9:21:25 PM
re: Buckling Down for 2005 The recovery date for recovery is very uncertain. Too much and too many companies competing has brought down the businesses. There are no chances that the investments stocks and mutual funds will show any recovery even by the year 2008.

Because of trillions and trillions dollars having been lost by overseas investors, no foreign investment should be expected for decades.
henry_class 12/4/2012 | 9:21:24 PM
re: Buckling Down for 2005
In my opinion only Bobby Max knows about the telco industry. All his predictions have come true and will be true.

Dear Bobby, I am a poor engineer at Maple Optical. Can you tell how many months I have before I am in the streets. I value your opinion more than anybody else.
Kevin Mitchell 12/4/2012 | 9:21:06 PM
re: Buckling Down for 2005 This projection for recovery in 2005 is another case of hope displacement. As gloom continues to fill our telecom bucket, hope floats further away from the current reality.

In 2001, many marketing VPs, analysts, etc. stated that 2002 was when the telecom economy would improve. When capex continued to be slahed the the upswing didn't materialize, the hope for recovery was moved to 2nd half 2002. Rather than just push it out 6-12 months and be forced to move it again, prognosticators have displaced hope to the far off date of 2005.
Elvis Doesn't Live 12/4/2012 | 9:21:06 PM
re: Buckling Down for 2005 I thought it was rather amusing that RHK is offering scenario planning as part of their program this year. I guess this enables them to finally get it right no matter what scenario develops.

Gotta cover your bases I suppose and it should also enable them not to have to apologize any more for all of the times they predicted the world was going to get better and didn't.
enrico 12/4/2012 | 9:21:00 PM
re: Buckling Down for 2005 I recently learned about what happened after speculative bubbles in the past. It turns out that the recovery time can be very long, even in the 10 to 20 years range after the peak. I am afraid that this could be true this time too for the telecom market.
whyiswhy 12/4/2012 | 9:20:48 PM
re: Buckling Down for 2005 The '05 story is just another gimmic by VC's to down round (aka steal) start-ups, and by the investment banks to drive down telecom stocks while they pick them up on the cheap. Check out the institutions holdings for your favorite service provider.

Investment turns on changes in regulations which provide sufficient reason to invest in new infrastructure. Period.

That's happening now. The time to invest is now, because it will spring back within a nanosecond of the regulations changing.

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