Analyst: Marconi in Line for 21CN
Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) is "so advanced with its products and so entrenched with BT Group plc that its selection [for BT's 21CN project] looks certain," according to analysts at Dresdner Kleinwort Wasserstein.
BT is set to name the key vendor partners for its £10 billion (US$19 billion) 21st Century Network any time now, having missed a previous self-imposed deadline at the end of March (see BT Still Locked in 21CN Talks and BT Moves Ahead With Mega Project).
Marconi is known to be on BT's shortlist of about 10 vendors, and the analysts at DKW believe it is "clear that Marconi will join the list" of winning suppliers, though the company "is set to experience fierce price competition in the final rounds of bidding for the pivotal 21CN contract."
The delay in the contract awards is believed to have been caused by fierce negotiations between the carrier's procurement team, which is seeking optimum value for money in return for a showcase contract, and its potential suppliers.
The DKW team notes that pricing is set to be "intensively competitive, exerting initial margin pressure on equipment sales, particularly in broadband access," but that Marconi's multiservice access hub and softswitch platform, "designed to allow a smooth migration from the existing AXE/System X core networks of today," should see it retain "its important position inside its largest [26 percent] customer."
As a result, DKW reckons Marconi will pick up a sizeable portion of the business, and that its share price is set to leap when the 21CN deals are announced. Marconi's current share price is 486.5 pence ($9.28), its 12-month low, compared with a high of 648 pence ($12.37). DKW rates Marconi a Buy, with a target price of £7 ($13.36).
The analysts believe Marconi will pick up about 40 percent of the access equipment deals, with Alcatel (NYSE: ALA; Paris: CGEP:PA) and Fujitsu Telecommunications Europe Ltd. picking up the rest. If DKW is correct, that would leave Huawei Technologies Co. Ltd. without a piece of the access pie.
The Chinese vendor is believed to have been shortlisted alongside the other three suppliers in the access portion of the new network, one of BT's five network categories, the others being core, transmission, metro, and I-node.
Success for Marconi in the access category should have a positive knock-on impact on its close partners, especially softswitch vendor Sonus Networks Inc. (Nasdaq: SONS). BT's 21CN requirements are believed to be behind the partnership forged by the two companies last year (see HR Unties Sonus/Marconi Tie-Up and Marconi & Sonus Team for Next-Gen).
The DKW analysts believe Marconi will win the lion's share, between 50 percent and 100 percent, of the softswitching contracts, with existing Class 4 switch replacement supplier Ericsson AB (Nasdaq: ERICY) "the other chief contender." (See Ericsson, Nortel Lead VOIP.)
Any access equipment award for Alcatel should spell good news for edge router vendor Redback Networks Inc. (Nasdaq: RBAK) and session border controller supplier Acme Packet, both believed to be part of Alcatel's 21CN pitch.
A contract award for Fujitsu, likewise, should broaden the smiles at Canadian WDM equipment vendor Meriton Networks Inc. (see Meriton, Fujitsu Make a Match).
The DKW team also believes that Marconi and Ciena Corp. (Nasdaq: CIEN) will be the key suppliers in the optical transmission category. Overall, the analysts expect Marconi's share of the equipment contracts to be worth between £150 million ($286 million) and £200 million ($382 million) per year, while its existing network services contracts with BT add a further £100 million ($191 million) to £150 million a year (see BT Renews $656M Marconi Deal).
Marconi recorded revenues of £1.45 billion ($2.77 billion) in its last full financial year to March 31, 2004, and reported quarterly revenues of £330 million ($630 million) in the third quarter of fiscal 2005 (see Marconi Reports Q3 Results).
BT's other main network services support provider is Fujitsu (see Fujitsu, Skanska Win BT Contract).
Not surprisingly, Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR) are cited by DKW as likely core IP router providers.
BT and its potential vendor partners are not commenting on the 21CN contract awards or when they will be announced.
— Ray Le Maistre, International News Editor, Light Reading