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Telecom Downturn: Just Beginning?

BURLINGAME, Calif. -- The carrier spending downturn could very well last another five to six years, according to Dr. John McQuillan, president of McQuillan Ventures. McQuillan, cochairman of the NGN Ventures conference here, sent a few attendees scrambling for their Maalox on Tuesday when he pointed out that, historically, capital spending downturns have tended to last for seven to eight years.

Since the telecom industry is only two years into its current downturn, McQuillan told attendees that they'd better just buck up and quit living in the past: "We need to stop telling ourselves that it’s a tough market and start telling ourselves that this is the market."

The reality for components suppliers and equipment vendors, he said, is that there are only a few service providers buying gear, and those buyers have "deep pockets, but very short arms."

Not everyone, of course, is convinced that today's downturn is the new reality. While pumping up his employees last week, Redback Networks Inc.'s (Nasdaq: RBAK) CEO Kevin DeNuccio said he thinks the telecom recession is nearly over. "[Market conditions] will not get worse than this because they can't get any worse -- I really believe that," he said (see Redback Rallies Itself).

DeNuccio did, however, distinguish between the telecom industry in general and the optical networking market specifically, saying that, thanks to excess inventory and unused network capacity at carriers, optical networking companies may well see "several more quarters" of depression.

Regardless of how long the telecom spending depression lasts, the damage already done is evident here. There were 2,100 attendees here last year and only 1,500 were pre-registered this year, according to show management.

Venture capitalists, after seeing record low returns in 2001, are back to investing with heightened skepticism and tighter focus. Several VC firms have also reduced the size of their funds. "This is a remarkable admission from a group of alpha males," McQuillan quipped (see VCs & Startups Go to the Mat ).

There are, however, investment opportunities still, as illustrated by the forty networking equipment, wireless, and component startups presenting here. And, despite the skepticism hurled at speakers during the conference's Q&A sessions, many companies here are taking meetings with VCs and seeking funding for their next big ideas.

Lexra Inc., for instance, says it's here looking for between $10 million and $15 million in incremental funding as it goes from being an intellectual property licensing business to a fabless semiconductor company that designs chips for Internet switches, access concentrators, and edge routers.

During the conference opener, Burton Group research director David Passmore named several service provider technology areas that are hot in the near term: next-gen Sonet, metro Ethernet, softswitches, multiservice switches/routers, core routers, and cellular/fixed broadband wireless. Under "longer-term" or "deferred" technologies, Passmore listed pure optical metro/core switches and 40-Gbit/s or higher-density DWDM.

Indeed, in certain parts of the network, the financial devastation endured by the incumbent equipment vendors has left gaping holes in their product portfolios. Kumar Shah, president and CEO of Occam Networks Inc., says that the access equipment market positions held by Nortel Networks Corp. (NYSE/Toronto: NT), Lucent Technologies Inc. (NYSE: LU), and Marconi PLC (Nasdaq/London: MONI) -- some 40 percent of that market -- are "up for grabs."

"The key to success now is having staying power and making sure your customers feel comfortable with your capitalization strategy," Kumar says.

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com
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opt_dhogan 12/4/2012 | 10:32:22 PM
re: Telecom Downturn: Just Beginning? Were will all of these people go? Defense? Academia? Electronics companies? Software companies?
cyber_techy 12/4/2012 | 10:32:20 PM
re: Telecom Downturn: Just Beginning? >Imho, the telecom market will recover soon.

Yes, it will

http://www.nwfusion.com/edge/c...

Dr.Q 12/4/2012 | 10:32:20 PM
re: Telecom Downturn: Just Beginning? The answer is 'all of the above' and more.

During the hallucinatory boom days we (telecom) drew good people from a wide range of industries like automotive, military aerospace, NASA, chemical, financial, electronics, computer services, software, US Military, electronic materials, robotics, academia, etc. In many cases these people showed the ability to make team contributions after only a few weeks on the job.

Granted, it takes a LOT of experience to understand the core technology of the business and to be a leading product architect. However, there were very substantial contributions made by people who were not technology gurus.

Good, skilled people who know how to learn quickly, identify critical problems, solve them and move on to tomorrow's work are extremely valuable. [My hiring criterion for the past 7 years has been to find people who can do just that. In 3 months I can teach them enough technology to be 90% self sufficient.]

You may need to learn some new skills, broaden your technology scope, and enter a bit lower on the totem pole than you were last year, but there are a lot of exciting things outside telecom.

Go for it!

- Dr. Q
melao 12/4/2012 | 10:32:20 PM
re: Telecom Downturn: Just Beginning? "Were will all of these people go? Defense? Academia? Electronics companies? Software companies?"

I really find odd this conclusion made by the VCs because i see the society evolving to something that will demand more and more infromation. And in transporting and making available that information lies Telecommunications.

Imho, the telecom market will recover soon.
TelcoDude 12/4/2012 | 10:32:19 PM
re: Telecom Downturn: Just Beginning? Eveyone knows that John McQuillan is full of BS. Everything he predicted went wrong.

Last 2 years he did a lot of hype on MPLS and DWDM and predcited that they will take over the carrier networks. All his NGN topics are full if it. His goal is to choose a very provocating topic and say come to NGN and you will find the answer. These guys just look at "what is the hot thing this month and start a BS discussion on that topic.

Starting from ATM everyhing this guy predcited went WRONG. I am really GLAD that he is predicting this downturn. During the MPLS DWDM hype this guy got excited and invested in MapleOPtical. Looks what happened to Maaaaaple. Laif of poeple and sitting on cash. Typical Atiq Raza company.

If John really knew what the hell carriers want, he would have know that it was just a hype.

Looking at this guys past trend I think we will see new spending.

ANd my impression is NGN is just a networking place for CEo's /CTO's etc nothing sparkling comes out of NGN. John makes his money.

But Good News will be here.....
chumly 12/4/2012 | 10:32:17 PM
re: Telecom Downturn: Just Beginning? I FIND IT HARD TO BELIEVE THAT YOU ARE BASING YOUR RECOVERY OPINION FROM AN RHK REPORT/

I SHOULD WRITE A INDUSTRY REPORT ON HOW MANY START-UPS HAVE CLOSED THEIR DOORS FOLLOWING RHK'S FABRICATED FORECASTING METHODS AND BELIEFS.
fusionboy 12/4/2012 | 10:32:17 PM
re: Telecom Downturn: Just Beginning? They will be scattered to the four winds - at which point we will end up in a situation not unlike what the oil industry faced recently - an absence of skilled workers trained in the discipline - in the face of sky rocketing demand for them. (kind of like what got us into this mess!)
fboy
Lichtverbindung 12/4/2012 | 10:32:17 PM
re: Telecom Downturn: Just Beginning? McQuillan has been proven wrong, year after year after year !!!

Summary of NGN for those who missed the conference in previous world :

1994 : IP is dead, ATM will rule the world !
1995 : IP is dead, ATM will rule the world !
1996 : IP will survive but ATM will rule the world !
1997 : ATM and IP will share the world !
1998 : ATM is dead, IP will rule the world !
1999 : IP over optics will rule the world, Sonet is dead !
2000 : IP and optics will rule the world but Sonet and ATM too !
2001 : Cheap Sonet and ATM will rule the world but optics and IP too.
2002 : Optics and IP are dead, Cheap sonet and ATM sucks !

I cannot believe people are still paying to attend NGN. I must say, the food used to be quite good though !
zweisel 12/4/2012 | 10:32:15 PM
re: Telecom Downturn: Just Beginning? ... why is anyone listening to these bonehead analysts anyway? They missed the boom, they missed the bust. Moreover, good analysts would have made millions by buying the right stock during the boom, and shorting the right stcok during the bust. They are totally disconnected from the industry and always have been. If all telecom companies go under, the Internet is dead, voice services are dead, B2B is dead, online shopping is dead... PLEASE! Most of the planet does not even have phone service let alone high-speed Internet access! There is a ton of growth potential in telecom as soon as these companies stop the engineers from running the finances... GO TELECOM!
ivehadit 12/4/2012 | 10:32:14 PM
re: Telecom Downturn: Just Beginning? this is just another article from LR to get the chattering masses back posting on its web pages. rather than chastising John M., how about asking LR for something more worthwhile for all of us to talk about.

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