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