The new report, "Broadband Access: Last Mile, Last Chance," assesses the evolving access equipment market by analyzing nine public companies and profiling 29 startups. The public companies analyzed in the report are:
- ADC Telecommunications Inc. (Nasdaq: ADCT),
- Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI),
- Arris Group Inc. (Nasdaq: ARRS),
- Cisco Systems Inc. (Nasdaq: CSCO),
- Harmonic Inc. (Nasdaq: HLIT),
- Juniper Networks Inc. (Nasdaq: JNPR),
- Motorola Inc. (NYSE: MOT),
- Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), and
- Terayon Communication Systems Inc. (Nasdaq: TERN).
In the past year or so, the dropoff in DSL and copper-based products has been more severe than in cable modem and fiber-based access products. And, judging by their financials, access equipment vendors have suffered comparatively less than their long-haul and metro counterparts.
"[The access market] held up well in 2001, but of late it has really been slammed," says Optical Oracle analyst Chris Bulkey.
The report indicates that access players are in much better overall financial shape than their counterparts selling core telecom networking gear. Indeed, the report points out that at the end of 2001 access companies weren't nearly as reliant on outside debt and that many of them still have strong financials -- especially Cisco.
The gorillas in the access market are ADC, AFC, Cisco, and Tellabs. (Alcatel SA [NYSE: ALA; Paris: CGEP:PA] and Lucent Technologies Inc. [NYSE: LU] are dominant in this space as well, but their financials aren't detailed in this report. Both companies were, however, analyzed in Optical Oracle's January report, "The Big Shots in 2002: Are They Ready?")
Regarding the access giants, they've got the lead in revenues, margins, and resources. They would logically be the biggest investors in -- and acquirers of -- startups, should the access market consolidate further. Cisco remains the most economically viable, maintaining gross margins above 60 percent and a positive cash flow of $2 billion in the fourth quarter of 2001.
Table 1: Gross Margins
|Company*||4Q01||Vs. Q/Q||Vs. Y/Y|
|3. Arris Group||27.4% **||8.0% **||16.5%|
|5. Harmonic||29.0% **||- (21.6%) **||- (8.8%) **|
|6. Tellabs||25.7% **||42.3%||55.8% **|
|7. Terayon||27.2% **||13.0% **||9.7% **|
|* Juniper and Motorola are not included because of their relatively recent and limited presence in the access space.|
** Includes the impact of non-recurring charges (inventory) assigned to cost of goods sold.
Source: Optical Oracle
Not having been battered as badly (or for as long) as its core counterpart, the access space may spring back quickly. The key assumption behind the report's logic is that carriers will realize that their spending on access gear provides a quick return on investment -- as opposed to, say, spending on core routers.
Besides assessing the damage done during the economic slowdown, the report highlights a few major trends that will surface in the near term. These include: upgrading digital loop carrier equipment and "packetizing" the edge.
The report expects the new breed of digital loop carrier boxes, which have more data-service capabilities than their predecessors, to find their way into service provider networks. Also, look for continued central-office consolidation of DSLAMs, multiservice switches, and edge routers.
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— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com Editor's Note: Light Reading is not affiliated with Oracle Corporation.