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Optical/IP

Market Research Merry-Go-Round?

The latest round of market research is showing just how tough it's become to gauge the depth and duration of the present downturn in telecom carrier spending.

Over the past two weeks, leading firms Aberdeen Group Inc., Infonetics Research Inc., and RHK Inc. have announced new figures that give differing and even contradictory takes on the state of the market.

On one hand, RHK has just revised its totals for the North American optical transport market (see RHK Revises Forecast), which comprises a bit more than half of worldwide revenues for the segment, the way RHK defines it.

The firm says total revenues from North American sales of DWDM gear, Sonet equipment, and digital crossconnects now are expected to be roughly $12.5 billion, down 36 percent from $19.6 billion in 2000 and nearly 68 percent less than the $21.5 billion in 2001 sales the firm estimated in May of this year (see Transport Gear Sales Seen Slowing).

What's more, revenues for 2002 are expected to be "flat" relative to 2001, in contrast to the firm’s May forecast between $21 billion and $26 billion.

”We came a long way off our original forecast,” admits Seth Newberry, vice president at RHK responsible for the new report. But he says carriers have taken some unexpected, unprecedented turns very quickly this year. They’re meeting demand by redeploying existing gear, for example, or leasing capacity from other carriers -- including those that have failed. Their unwillingness to start new buildouts has forced vendors to reduce pricing, further eroding sales figures.

RHK plans to update its global optical transport figures within the next two months. And subscribers to the firm’s research services don’t have to pay extra for the revised reports.

On the other side of the market research spectrum are Aberdeen Group and Infonetics, which both have recently published optimistic takes on the optical networking market.

In its latest report, Aberdeen says worldwide capital spending on DWDM, optical switching, and Sonet/SDH is expected to exceed $56 billion in 2001 (see Report: Market Migrating). These figures include $7.47 billion in so-called intelligent optical networking gear and $49.2 billion in Sonet/SDH equipment.

According to Aberdeen analyst Andrew McCormick, intelligent optical networking (ION) equipment is defined as DWDM and optical switching gear capable of manipulating optical carrier signals for the purpose of optimizing network transport, switching, and management. And it's continuing to sell well, McCormick says, despite the downturn.

Worldwide revenues from ION gear will grow dramatically, Aberdeen says, from $7.47 billion in 2001 to $11.9 billion in 2002 and $23.4 billion in 2003. Meanwhile, Sonet/SDH gear will start declining, from $49.2 billion in 2001 to $45.6 billion in 2002 to $43.8 billion in 2003.

Infonetics has also embraced the intelligent optical networking taxonomy. But its latest forecast says intelligent kit will be worth $10.3 billion in 2001 (see Next-Gen Optical: Bucking the Slump).

On the face of it, all this research adds up to a confused jumble. Not only do total sales figures differ sharply from report to report, but the new taxonomies presented by the likes of Aberdeen and Infonetics change the landscape of key products and players dramatically.

According to Aberdeen, for instance, Nortel Networks Corp. (NYSE/Toronto: NT), Lucent Technologies Inc. (NYSE: LU), and Fujitsu Ltd. (KLS: FUJI.KL) -- in that order -- lead the "old" telecom market, including Sonet/SDH and DWDM gear requiring proprietary lasers and receivers. But when the market is viewed according to sales of new ION gear, Ciena Corp. (Nasdaq: CIEN) ranks first, followed by Lucent Technologies Inc. (NYSE: LU) and Nortel.

For their part, researchers admit their job's gotten tougher with the downturn. "Carriers are changing their capex plans on a quarterly basis," says Aberdeen's McCormick. They're also increasingly reluctant to discuss their plans, he says, and they have clamped down their guard on information about the types of equipment they plan to buy.

There are other reasons for carrier caginess. ”It’s always been difficult, but this year, fair disclosure has made it more troublesome,” says RHK’s Newberry. He says new regulatory strictures have caused carriers to hesitate in offering researchers any information that may not have been given to general investors. That makes it tough for firms to get the basic data they need for accurate forecasts.

Researchers also concede that evolving technologies and changes in networking equipment are making it hard to follow the traditional breakdowns of telecom gear. Infonetics founder Michael Howard, for instance, admits he's had to revise his year-2000 baseline totals on intelligent optical gear since starting to track it last quarter.

"We've added in revenues from some products we left out in the first go-around," Howard says. Since June, the firm has changed its 2000 total for intelligent optical network hardware from $5.3 billion to $6.77 billion.

Readers who want to "sound off" about market research are invited to take out latest poll at Market Research: What's it worth?.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com
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ivehadit 12/4/2012 | 7:52:27 PM
re: Market Research Merry-Go-Round? by their own admission, RHK missed its forecasts by huge margins. But they are bold enough to venture another forecast on the heels of that admission. whither humilty?
my2cents 12/4/2012 | 7:52:27 PM
re: Market Research Merry-Go-Round? Most of them are unanimous that the Edge Switch/Router aka Edge MSPP switch aka Edge Next-Gen Optical Switch is the area which will continue to see growth.

This should benefit companies like:
Cisco, Alcatel (tier 1)
Unisphere, Riverstone (tier 2)
Equipe, Gotham, Wavesmith (tier 3)

Its edge time.

wiseguy 12/4/2012 | 7:52:24 PM
re: Market Research Merry-Go-Round? Not whither humility, but whether humility, or whither RHK?
uncle[email protected] 12/4/2012 | 7:52:24 PM
re: Market Research Merry-Go-Round? Mary:

I think that there is a heck of a lot more to say about the topic than what you have stated. Research is a tough business and the forecasting business is an ugly one. . Who you know, what your contacts have to say and how much they trust you....(sound familiar?) determines what you can do. The basis for forecasting has to be a blend of history, an understanding of economics and having people on your staff who have worked at Service providers.


My company likes to buy reports based on who says what about us and what new insights people can offer that might give us competitive edge. If anyone could accurately predict the future they would have retired happy, fat and rich a long time ago. the numbers are for guidance purposes only. (I seem to recall one of your colleagues has offered up some forecasts of his own in his past job at Pioneer Consulting. How come he wasn't cited as a revisionist???)

RHK is a %$#%# joke. Everyone who knows anything will tell you that. They shill for their clients and are a damn disgrace. Yankee (whom you didn't cite) is just as bad. Aberdeen is a third tier player and their analyst used to work in Real Estate before he started writing optical reports. Howard, on the other hand is a good analyst from what I have seen of his work. I noticed that you did not mention some other analysts who have reputations for being fairly conservative.

Vendors also reward people based on how much the analysts dance for them. Analysts who can paint a rosy picture for growth are looked upon kindly.

Maybe you should take a survey and see what the market has to say about the specific firms. Not scientific perhaps but it would make for some interesting reading. Try and find out if they ask for Pre-Ipo stock, let clients revise their profiles or offer "special services" for clients or if they fluff their numbers.

My vote for the most honest firm is CIR. They don't know everything but at least they can be respected for professional integrity.
stuartb 12/4/2012 | 7:52:24 PM
re: Market Research Merry-Go-Round? Even with the revised numbers for Optical Transport, RHK continues to forecast growth in what they call Next Generation Optical Edge Devices (OEDs), in particular those that are based on SONET.

There is in effect no contradition here, it's just a matter of how the markets are sliced and diced.

-Stu
Multiplex 12/4/2012 | 7:52:24 PM
re: Market Research Merry-Go-Round? How about a poll that asks who has the most credible market research and analysis out the major companies: RHK, KMI, CIR, Electronicast, etc. (You might also add in your own Clavenna.)
benson 12/4/2012 | 7:52:22 PM
re: Market Research Merry-Go-Round? Why RHK, of course! Uncle_optics, I totally agree with your opinion on this matter. I also agree that CIR is the most honest, though sometimes they make errors (honest errors, however).

As I mentioned in a separate thread, consider this prime example of RHK's work. Last year they published a "study" of DWDM components. An area of interest of this study was AWG's. Incredibly, they did not even mention NEL, one of the giants in this field.

How could they miss this information?? At the time of this report, there were only three large consumers of AWG's: NEC (who makes their own devices), Lucent and Cisco. Both of these latter two companies use NEL. All they had to do was ask any of these companies about the situation.

Needless to say, RHK DID include every start-up company which was agressively marketing itself as "the next big thing". Some of these companies are virtual non-entities in the field of PLC's.

Also needless to say, all of these companies are "sponsors" of RHK's "conferences" or their customers.

Coincidence? I think not.

Benson

cfaller 12/4/2012 | 7:52:22 PM
re: Market Research Merry-Go-Round? Uncle Optics:

The point Mary was making, which is continued in the poll, is not that we should judge analysts based on the wisdom of their forecasts, but rather reassess the value of these reports.

The downturn in the markets that was not seen by anyone at RHK, Aberdeen, etc. is the catalyst for this reassessment. I don't think anybody expects these analysts to be right all the time, or even a majority of the time. But should a whole bunch of telecom companies pay anywhere from hundreds to thousands of dollars for a report that is grossly inaccurate? How valuable is an RHK report if they're going to do a 180 3 months from now? How much money do you want to pay RHK for that piece of s--t?

I personally feel that analysts charge way too much for what is, essentially, guessing. While most of the reports are probably not worthless, they definitely are not worth what we are charged...
[email protected] 12/4/2012 | 7:52:21 PM
re: Market Research Merry-Go-Round? Well...now it seems that LR bothered to interview RHK for their side of the story.

Mary: Why the revision? Is it because you never called them to begin with or is it because they bitched about the other companies getting fair chance to quote? Please explain this to the loyal readership here.

I agree with the last two posts....I don't believe that anyone saw the downturn because they did not understand the dynamics, the market or how the telecom game is played. Now,iIf everyone wound up being 20% too high because of an economic recession then hey, that happens. We lived for three years with impending doom that never happened so when it finally did, well, time to adjust. My issue with the forecasting was that it was based on:

1. Unrealistic growth
2. no consideration of carrier's financial health
3. a stock market that was over inflated
4. linear growth expectations
5. padded numbers
6. what carriers "had" to do.
7. Talking to the mfg. companies.

For RHK & others to have to revise that badly should tell the world that they are smoking crack when they do these numbers.

And....when will someone please start asking the hard questions of these companies?

1. Does your firm accept or solicit pre-IPO stock from companies?

2. Do you allow companies the ability to review and revise profiles? (or let them write their own)

3. Are there any companies listed in the report who are NOT customers?

4. Do you edit profiles that contain criticisms of clients made by your analysts?

5. What's the pay for play rule?


Inquiring minds want to know!!!!
skeptic 12/4/2012 | 7:52:20 PM
re: Market Research Merry-Go-Round?
One of the major problems in the space these
days is that NOBODY can predict whats going
to happen. These forcasts are utterly useless
and amount to little more than guesswork on
the part of those concerned. They know it
themselves, but the customers for their research
don't want to hear anything like that.

Whats happening mostly is that people are feeding
negative expectations rather than positive ones.
And they are not any more accurate than when
they were overstating the growth.

There are people getting rich off of attacking
communications stocks valuations. And its just
as phony as the big runups in these stocks were.

Some of these companies do little more than
reflect back what the people they are talking
to are saying (and sometimes what their research
customers want to hear). Its not scientific
research, sometimes it little more than
something like an opinion poll.



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