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2003 Predictions

Column
Column
Column
1/24/2003

January, 2003. It's like having a fresh cup of coffee in Saskatchewan. It makes you feel a little warmer, but you're not sure if there's enough to keep you warm for the rest of the year.

Time for some off-the-cuff, back-of-the-napkin (or maybe-he’s-smoking-crack) predictions:

1) Nortel’s Next Act: Our moles in the Great White North were right about Q4 (see Nortel’s Quarter Perking Up? and Nortel Earnings Are Upbeat). Indeed, the steady, negative buzz emanating from Ottawa throughout 2001 and 2002 appears to have trickled to a halt. Is that because everyone got laid off or because things at Nortel Networks Corp. (NYSE/Toronto: NT) are improving? I see improvement.

Q4, which was just served up, was saved by carrier “budget flush.” Q1 2003 should be watched more carefully – it will likely not be as pretty. Still, unlike its feckless rival down South, Lucent Technologies Inc. (NYSE: LU), Nortel has a much more manageable debt scenario. The biggest portion of its debt doesn't come due until 2006 – plenty of time for a recovery. The bankruptcy risk now looks fairly minimal. 2) Pork for Packets: In the United States, the federal government knows who pays the rent – it’s the RBOCs and not the sorry-ass CLECs. The incumbents will win on UNE-P and get other forms of regulatory relief. Not that it really matters... The notion of RBOCs being rescued by a few more pennies in the wholesale copper access business – or by being allowed into the masochistic long-distance market – is a bit of a joke (see Senators Skeptical of Deregulation, Will Powell Pull the Plug?, and The Value of UNE-P and Dividends).

What’s really crucial is what the RBOCs do after the Feds come to their rescue. Will they really invest in the broadband infrastructure as they’ve promised to do? Or will they have their pork and eat it too? I predict that broadband will happen, and RBOCs will move heavily into data-networking services. Maybe not all in 2003 – but by mid-2004.

3) The LULU VARiation: No, I'm not exactly sticking the neck out here – Lucent will move more decisively into becoming a "value-added" reseller. Pat Russo’s Gerstnerization of Lucent is already underway, as witnessed by the landmark Cisco deal (see Lucent & Cisco: Together at Last and Lucent Toes the Line). Expect many more deals like this – with anybody and everybody in the datacom market. They have no choice. Lucent has the RBOC accounts, but it trashed its product lineup. In 2003 its going to line up a steady stream of deals selling other folk's gear. There is already precedent for this strategy for saving dying companies – just look at what happened to the mainframe business in the 1970s. Will it work? Who knows? One thing is for sure, becoming a VAR doesn't solve the larger management (and Bell Labs) issues (see Post-Bubble Arrogance).

4) A large gaping hole will open up in the earth and swallow JDSU: Well, this may be wishful thinking. What a miserable company! They're like a bunch of high-school yearbook editors hired to write headlines for the New York Times.

JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) emerged as leader in the industry through the pure serendipity of a half-dozen scotch-taped acquisitions. But think about what the future holds for JSDU: Its "market-leading" products are being rendered more obsolete every day; its manufacturing strategy consists of rafts of cheap labor with sticks of Crazy Glue (see JDSU in EDFA Recall); and its marketing has all the allure of K-mart on a Monday morning. Squeezed midway between Asia and Intel, JDSU could become the industry’s component pancake. Stick a fork in them.

5) Kriens Cuts Out: Scott Kriens, the Untouchable CEO of Juniper Networks Inc. (Nasdaq: JNPR) must be tired. Wall Street loves him, but you've got to wonder if it's time for Kriens to hit the Bahamas – or least kick himself upstairs. In former Unisphere chief Jim Dolce, Kriens has a natural successor. If he so chooses, the path has been set.

6) Startup Toast: Tunable laser companies. They’re niche players with no viable niches. Think about their customers: Who’s ready to market a next-generation optical switch? Ha! That’s what I thought. Sure, you can dream about a market in 2005 – but where’s the money coming from in the meantime? The only hope is that JDSU will buy them before the earth opens up.

7) Startup Gravy: Laurel Networks Inc. and Calix Networks. There’s hope for the companies that aim to bust open edge bandwidth and help carriers deliver new services. Calix will come out of stealth and their product will be more interesting than previously imagined – we may even have to rescind their Turkey Award (see Turkey Awards). It could be one of the most important startup stories of 2003 (see item 2 above).

8) Market Moves: It will go up. It will go down. It will go all around. But the net movement will be mostly sideways. End of the year 2003 targets: Nasdaq, 1500; Light Reading Index, 110.

9) Sell-Side Surgery: I guess the job of Wall Street research analyst was too good to be true: Get paid millions of dollars to issue vague and unreadable reports, become a media rock star, get chummy with CEOs, and ride in Gulfstreams. It was fun while it lasted, eh? But guess what? Wall Street has figured out that without investment banking, this business doesn't pay for itself. Expect the major investment firms to cut heavily into their research budgets, outsource them, or excise them entirely.

10) Another major carrier will go bankrupt: Will it be Cable & Wireless (NYSE: CWP), Global Crossing Holdings Ltd. (again), Level 3 Communications Inc. (Nasdaq: LVLT), Qwest Communications International Inc. (NYSE: Q), or WorldCom Inc. (OTC: WCOEQ) (again)? Who knows. What is known is that the crowd has more thinning to do.

— R. Scott Raynovich, US Editor, Light Reading

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stuartb
stuartb
12/5/2012 | 12:48:28 AM
re: 2003 Predictions
C'mon Scott, we know you love Carl Russo but you've got to be kidding.

Calix coming out of stealth "might be one of the most important startup stories of 2003"?? I hear they just did a 1 for 100 reverse split, how's that for startup gravy!

-Stu
joe_average
joe_average
12/5/2012 | 12:48:26 AM
re: 2003 Predictions
Stu wrote:

Calix coming out of stealth "might be one of the most important startup stories of 2003"?? I hear they just did a 1 for 100 reverse split, how's that for startup gravy!

-----------------------

I'd have to agree. After laying off a sizeable portion of the engineering staff, it doesn't seem that they are building for future success. More of a pump-n-dump.

Maybe that's the modern definition of a start-up success story these days. Sad.
TelcoDude
TelcoDude
12/5/2012 | 12:47:59 AM
re: 2003 Predictions
I saw calix presentation a couple of years back at my previous employer (a dying clec).

The product was not anything extraordinary, looked like a cisco 454 compressed into half, with dsl and pots interfaces.

From what I could make out from the marketing guy's english, which was hard to follow, it looked like this box helps migrating from copper to all fiber networks with dwdm interfaces. They were counting in all optical networks to emerge.

Tough times are ahead for all optical networks.
roomyroom
roomyroom
12/5/2012 | 12:47:58 AM
re: 2003 Predictions
From what I could make out from the marketing guy's english, which was hard to follow, it looked like this box helps migrating from copper to all fiber networks with dwdm interfaces. They were counting in all optical networks to emerge.

Tough times are ahead for all optical networks.
-----

I think that is quite right.
jackall
jackall
12/5/2012 | 12:47:49 AM
re: 2003 Predictions

Yeah, here come the playa haters
dissin' my boy Carl
"The Russonater"
And if you talk slick
He'll assasinate ya
One extra large heat seeking suppository
and we won't see ya later.

Jackall
pipesoflight
pipesoflight
12/5/2012 | 12:47:35 AM
re: 2003 Predictions
Alzheimer disease will continue to plague the scoundrels during prosecution phases of the trials and investigations. Pennies on the dollar will be recovered from them, if anything at all. The losses caused by the scoundrels will ultimately be paid for by end-users in some creative form.

Top executives will not take pay cuts or reduce benefit packages despite the disgust from the public. If things pick up they will take credit (some will be deserved). If things continue downward they will use external factors to explain it.

More layoffs at the largest G«£brand nameG«• hardware vendors. This will be done to reduce overhead (offset losses) and try to present a positive light on their companies in order to boost stock value for the shareholders. Commonly used words and phrases (upgrade business models, realignment of assets, restructuring, consolidation, G«™) will be used for the layoffs.

Top "brand name" hardware vendors will go shopping to buy IP (intellectual property) where it is cheaper than the cost of in-house R&D dollars. Reduction of in-house R&D spending.

Domestic service providers will continue to cut costs for services (offer limited period discounts) in an attempt to prevent erosion of customers and stiff competition. I expect some house cleaning layoffs here as well. They will wait for a more positive upward tick in the markets before we see huge contracts with hardware vendors. I am hopeful that we will see more G«£article worthyG«• contracts in 3Q or 4Q.

Wireless service providers that aggressively compete in pricing with traditional home-based (voice) phone lines will gain market share. This will continue to put a squeeze on long distance providers since they are raising rates currently to force end-users to pay for past losses. I think the acquisition word may be used in combination with names of some wireless service providers that canG«÷t compete aggressively enough. Wireless service providers will use this to their advantage until a UNE-P agreement is made. Once the agreement is reached and if the RBOCG«÷s get what they want, then they will have to put up or shut-up on capex spending to be credible. Depending on how it all shakes out (timing & speed of implementation) in this downturn we may see more hardships for non-facilities based service providers.

Startups will continue to reduce staff to stay alive and hope for acquisition or a miracle contract.

Component vendors will have to reduce overhead until things pickup.

Once congress gets off the stimulants and passes a serious stimulus package, companies will try to use the money in ways to boost stock value. If shareholders see stock values going up, service providers will invest more in the network infrastructure (upgrades). Hopefully these stimulus dollars will be tied to job creation rules.
lastmile
lastmile
12/5/2012 | 12:47:30 AM
re: 2003 Predictions
"A large gaping hole will open up in the earth and swallow JDSU".
This will not happen soon. It may happen 10 years down the road if some new fiber component manufacturer developes components far superior to what JDSU does. But JDSU continues to invest heavily in R&D and their new products are substantially superior to the competition that is barely able to survive in todays telecom meltdown. K-Mart and JDSU? What a silly comparison. Ever heard of K-Mart and R&D?
pipesoflight
pipesoflight
12/5/2012 | 12:47:29 AM
re: 2003 Predictions
lastmile

I enjoy reading your post when we converge to a common thread. Keep sounding off.

JDS Uniphase impressed me back in 1999-2000. Several of my Alcatel buddies thought they were a good company. Alcatel accounted for about 12% of their revenues.
They remained true to their calling in the Optical arena. They bought companies that related directly to their strengths. They bought a lot of component vendors. I don't know what they paid for each of them and the monetary returns on them.

JDS is a victim of the sorry situation we all find ourselves in. I hope they make it too. But hope is all I have. This is a link I found on the net. It is written from someones viewpoint so remember, anything can happen good or bad. We will hope for the good. I wish I knew more about their management.

http://www.biz.uiowa.edu/henry...
Scott Raynovich
Scott Raynovich
12/5/2012 | 12:47:16 AM
re: 2003 Predictions
>JDS Uniphase impressed me back in 1999-2000. >Several of my Alcatel buddies thought they were >a good company. Alcatel accounted for about 12% >of their revenues.
>They bought companies that related directly to >their strengths. They bought a lot of component >vendors. I don't know what they paid for each >of them and the monetary returns on them.

Exactly! They paid a lot... and the returns were negative.
lastmile
lastmile
12/5/2012 | 12:47:13 AM
re: 2003 Predictions
Exactly! They paid a lot... and the returns were negative
They paid with stock and not cash. All those deals required the stock holders approval and the euphoria of those days made these transactions go through easily.
...... and the returns were negative because the IT industry decided not to spend.
If the long haul fiber glut had transformed into metro in stages then the tele-com sector would have had a reasonable rate of growth. But that never happened.
I do not foresee growth in the near future but as and when it does happen it will be fiber because copper has reached it's limits in terms of old age and bandwidth.
The controversy here is not just JDSU. If you can prove to me that that there is another component manufacturer that is selling products that are far superior to those made my JDSU (and making money) I would like to hear about it.

PS: If I have to spend money to purchase a special report from LR then please disregard this message.
Sincerely
lastmile
Page 1 / 2   >   >>
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