Asking the Right Question

When will the market for telecom equipment recover?

I’m often asked this question, and in response I usually cast about for some evidence that will enable me to suggest that “Good Times Is Just Around the Corner!”

The truth is that I’m just doing my bit to keep people’s endorphins flowing. [Ed. note: Failing that, there's medication.] I actually have no clue when the recovery will happen. Sorry. Although I think – and I'm not afraid to go out on a limb here – that recovery will come... some time or other...

The smart aleck answer to the question about the timing of a recovery is that it’s the wrong question. The right question is: “What should I be doing to prepare for the recovery?”

Over the past few months, we’ve been working on a project that aims to help people answer this question. It finally saw the light of day yesterday, in the form of a 150-page report published by our market research division, Heavy Reading.

The report, entitled Heavy Reading 2003 Telecom Equipment Market Perception Study, examines the results of a massive survey in which 770 service provider employees from around the world participated. We asked them which equipment vendors they recognized in 22 product categories, and we also asked them which they consider market leaders in terms of price, performance, quality and reliability, and service and support.

The report makes addictive reading, demonstrating as it does that the telecom equipment vendor landscape has changed radically in the past few years. Cisco Systems Inc. (Nasdaq: CSCO) has achieved recognition as a world leader (see Cisco Winning Market Perception War). Lucent Technologies Inc.’s (NYSE: LU) reputation has gone into terminal decline. Other Big Names no longer carry so much clout – and a lot of startups hardly register on carriers’ radar.

Quoting a few highpoints (and low points) like this isn’t really doing the report justice. The massive amount of granular information on how carrier employees perceive their equipment suppliers (304 of them, public and private) provides endless scope for analysis – as well as limitless fodder for kicking off heated debates with one's co-workers.

More importantly, the report can help address the right question – how to prepare for recovery.

From the carrier viewpoint, the Heavy Reading report provides an easy way for service providers to sort the wheat from the chaff when shortlisting suppliers for RFPs – and single out the vendors that look as though they’ve lost the plot and may not survive.

For instance, carriers might well find it useful to know which suppliers of Sonet-based multiservice provisioning platforms have the best reputation for service and support. In the survey, 157 carrier employees gave their views on this issue, and two suppliers – Cisco and Nortel Networks Corp. (NYSE/Toronto: NT) – stand out from the crowd. In the same product category, Nortel and Fujitsu Ltd. (OTC: FJTSY) are perceived as the front runners on quality and reliability – another issue where feedback from a large number of service provider employees (171 in this case) gives guidance that would be hard to get in other ways.

Among vendors that are slip sliding away, Lucent stands out. As Dennis Mendyk, editor of the report, says in his Heavy Reading column: “Looking at the survey results for Lucent, you can almost hear the carrier market collectively roll its eyes at how mediocre that company is now perceived to be.” (See Cisco's Big Bash.)

From the equipment vendor viewpoint, the Heavy Reading study gives companies a vast tome of data to help them figure out whether they’re doing the right thing in terms of addressing changing carrier requirements. They can see whether their message is getting through, whether carriers like it, and how they stack up against competitors.

Early signs are that some vendors would rather not know how they’re doing. They’d prefer to bury their heads in the sand and look for ways of challenging the results of the survey. That’s why you’re seeing folk on the message board suggesting that the people we surveyed were dunderheads. They definitely weren’t. Read the survey methodology; and check out the breakdown of the survey respondents:

Here are some lessons that equipment vendors might learn from the survey:

  • Vendors sometimes claim theyalready know their potential customers and thus don’t need to do much marketing. Wrong! Most vendors – even big ones – are known by fewer than 50 percent of survey respondents, and these are respondents that claim familiarity with the product category under review.

  • Startups that cut their marketing budgets, often at the behest of their VCs, are making a big mistake. With a few exceptions, most startup vendors are known by fewer than 20 percent of their potential customers. The argument that this no longer matters to startups because they are hoping to be acquired by a bigger vendor is – not to put too fine a point on it – utter hogwash. They won’t get acquired unless they can show traction with carrier customers, as my recent interview with Niel Ransom, CTO at Alcatel SA (NYSE: ALA; Paris: CGEP:PA), demonstrated (see Niel Ransom, Alcatel CTO).

  • Vendors that are sitting on the sidelines, aiming to rekindle marketing efforts when the recovery begins, are being forgotten about by carriers. Sycamore Networks Inc. (Nasdaq: SCMR), for instance, is now only recognized as an optical switch vendor by 36.7 percent of carriers, as opposed to 77.5 percent for Nortel and 71.7 percent for Lucent.
The Heavy Reading study also indicates whether marketing money is being well spent. Juniper Networks Inc. (Nasdaq: JNPR), for instance, has been placing small cartoon ads in the Wall Street Journal, to attract the attention of executive decision makers. You may have noticed, although it looks as though those executive decision makers haven’t. One in five corporate managers in the survey don’t even know that Juniper makes a core router.

From the investor viewpoint, the Heavy Reading report helps sort out the winners and losers among equipment vendors. The granular analysis of how vendors stack up against the competition, and what potential customers think of them, provides financial analysts a useful tool for assessing whether companies are going to be in a good position when recovery happens – whenever that is.

All in all, this survey stands as one of things that I’m most proud of since founding Light Reading four years ago. Partly, that’s because it is such a clear proof point for how huge and influential our readership now is (nearly a thousand service providers took the time to take this survey). But mainly it’s because it is exactly the kind of document that a fiercely independent technology publisher like Light Reading should be producing: a huge volume of quantitative information, gathered using a bulletproof methodology, that cuts like a razor through all the complacent, smug BS that companies of every size in our business spread about themselves and their competitors.

The Heavy Reading 2003 Telecom Equipment Market Perception Study shows exactly what their customers really think.

— Peter Heywood, Founding Editor, Light Reading

dodo 12/4/2012 | 11:23:03 PM
re: Asking the Right Question System vendors:
1. Only sales and marketing folks are acutely aware that the market is down or picking up depending on the traction or demand for their products.
2. Engineering may be aware if they are SAE and field engineers.
3. Management sometimes does not want to accept the truth and expects forecast and actual sales to be higher than what the market is .

Service Providers.

1. sales and marketing guys are promoting services and sometimes applications based on the technology and boxes engineering has decided to deploy.

2. Operations , network planners and engineering know what boxes are being deploy in their little network segement since they do not have the whole picture as far as the network hierarchy is concerned.So the router guys may not know DWDM systems.The OSMINE guy is not aware what is happening on the data side most of the times.

3. Procurement and Management- if financing is involved, well everything is questionable and for sure they won't differentiate an optical switch from a core router.

This is just a limited view and UUNET is a good example on how miscalculation and optimistic forecast could end-up misleading everyone from the equity research analyst to the CEO of an OEM.

So have we reached the bottom yet?

Just my 2 cs:-)
sevenbrooks 12/4/2012 | 11:22:59 PM
re: Asking the Right Question
Does it mean:

a - End of Declines in CAPEX spending
b - Return to Growth in CAPEX spending

All signs point to a over the next year or so. Now on to b.

Does CAPEX growth look like

1 - Double Digit growth back up to $100B spent in NA?
2 - Single Digit growth for the forseeable future?

All signs point to 2. So, I think its not just being set up for a recovery but understanding that telecom is going to return to a low growth sector once again.

hitekeng 12/4/2012 | 11:22:55 PM
re: Asking the Right Question Ok so you may have questioned some employees on their perception of certain vendors equipment, support, brand recoginition,... You also re-iterate that the "heavy reading" report is excellent on all fronts (RFPs, decision making, products differentation, vendors standing,..).
This is just fine and you are doing exactly what you are supposed to do (SELL THE REPORT!!!). However, decisions (RFP awards, vendor selections,..) may not be necessarily made by those employees but by higher up management based on several factors of which price, political connections, vendors origin (Europeean, American, Canadian, chinese,...). So all in all, the report may not be worth the paper it would be printed on (who knows, in their heydays, Enron and Worldcom would have gotten rave reviews from employees and customers that would have followed their "once-upon-the-time" rise in stocks value....).
intrigued 12/4/2012 | 11:22:54 PM
re: Asking the Right Question
Heavy reading is with this article doing exactly what they claim the vendors are not doing so well....marketing. Journalism no ...marketing yes. Maybe the equipment vendors need to start their own tabloid website to sell their wares.
Peter Heywood 12/4/2012 | 11:22:53 PM
re: Asking the Right Question Not sure of the point you're trying to make here.

It is journalism to survey a bunch of folk and then analyze and publish the results.

This was a big undertaking and we have to make money from it some how - so we're giving away some high level analysis in the form of news stories and so on, and selling the in-depth stuff as a monster report.

And yes, the news stories serve a dual purpose. They help us market the report in just the same way as equipment vendors ought to be making sure that their prospective customers are aware of the benefits of their products.
wiseguy 12/4/2012 | 11:22:40 PM
re: Asking the Right Question The question "when recovery" seems wrongly phrased to me. "Recover" means
1 : to get back : REGAIN
2 a : to bring back to normal position or condition <stumbled, himself="" recovered="" then="">

It seems plausible to me that this industry will never "get back" to the way it was, even pre-bubble. The structural and talent changes have exceeded the restoration threshold.

So, instead of "recovery" the industry will grow towards something else entirely. Whether it is an old story like vertical integration or a new story like converged networks, or something different, I have no clue. But I believe that we will never "get back."

firstmile 12/4/2012 | 11:18:21 PM
re: Asking the Right Question Peter,
I think where you get in trouble is:
1. Many (not all) of the stories on LR are almost completely unfounded and getting close to our very own "National Enquirer". And it is getting worse over time.
2. In contrast, and I mean HUGE contrast, the Heavy Reading stuff that I have seen (2 reports so far) are OUTSTANDING.
It's tough to live in a day-to-day operation with this level of extreme contrast.

I would suggest tightening up on the facts for number 1. And don't get me wrong, I (we) love the humor, but can live without the loose cannons.
My two cents...
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