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Optical/IP

Report: Who's Ready for Rebound?

At the start of 2002, carriers maintain a deathgrip on their wallets. But the market moves on, and according to the latest report from the Optical Oracle, Light Reading's subscription research service, the cyclical nature of the overall economy virtually guarantees a future renewal of significant investment.

The question is: Who will be ready for the rebound?

Not all of today's telecom equipment Big Shots will take top space in tomorrow's market, according to the report. If the Big Five, including Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), Lucent Technologies Inc. (NYSE: LU), Nortel Networks Corp. (NYSE/Toronto: NT), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), don't invest in the right product areas now, they stand to be left by the wayside -- or displaced by smaller, more agile competitors.

What are the key areas? Among others, the report identifies the following as "sweet spots" of carrier demand:

  • Legacy bridging It's crucial that vendors help carriers close the gap between legacy networks -- such as those based on ATM and frame relay -- and IP networks. Products that can bridge this "Great Divide" will sell.
  • Fast provisioning Scaleable systems, particularly those based on DWDM, that make it easy to provision wavelength services in metro areas, will be vital to future success. Also, core transport switches that enable high-speed circuit provisioning are a "must have" for the Big Five.
  • Optical access Remote terminals, CPE, and pedestal gear are literally the carriers' gateway to further optical networking deployments. Thus, access is key driver of future capex.
  • Edge routing Devices that support Layer 2 services based on an IP/MPLS core mean revenue creation for carriers. Because of this, they will be at the top of carriers' "to buy" lists.

According to the report, gauging how well companies are on track to hit these targets calls for a taxonomy based on two major categories: the transport layer and the services layer. Within these categories, the report defines a range of subcategories:

The report applies this taxonomy to the existing portfolios, product plans, and financials of the Big Five. What emerges is a profile of each of the big vendors that indicates its specific strengths and weaknesses.

Alcatel, for instance, stands to gain on the strength of the DWDM market in Europe but needs to watch what it's spending in some areas. Cisco is strong but needs to quickly find an optical switching strategy to support its gargantuan valuation. Lucent and Nortel must plug key holes in their optical lineups, ones that make them especially vulnerable to selected aggressive startups. And Tellabs' future depends in part on how it builds on its recent acquisition of Ocular Networks (see Tellabs Nabs Ocular).

Underlying the report's analysis is the tenet that future success for the Big Five vendors lies in how they do -- or don't -- meet carriers' new "success-based spending" model.

"Carriers only spend now when revenues are guaranteed," says Chris Bulkey, Optical Oracle research analyst and author of the report. "But they will do whatever they have to in order to get a service up if that service is guaranteed to generate sales." The report, he asserts, is aimed at identifying those products that will guarantee revenues -- and who will be making them.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com

Editor's Note: Light Reading is not affiliated with Oracle Corporation.
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skeptic 12/4/2012 | 11:04:06 PM
re: Report: Who's Ready for Rebound?
Yes, services are important. But at most of the
carriers, reducing the cost of operations
or equipment is equally important. Solutions
that eliminate or reduce the amount/type of
equipment at the service provider are
as important at this time as services are.
Steeler 12/4/2012 | 11:04:03 PM
re: Report: Who's Ready for Rebound? It's great when you can use colored circles to describe a company's market position. Of course, I was unhappy to see that Steeler Black and Gold was missing.
puddnhead_wilson 12/4/2012 | 11:03:57 PM
re: Report: Who's Ready for Rebound? in this this article is actual NEWS. Is this article a NEWS ARTICLE, or an ADVERTISEMENT?
switchrus 12/4/2012 | 11:03:57 PM
re: Report: Who's Ready for Rebound? Lemmings

The great thing about following the big carriers and what they are doing is the GǣLemming EffectGǥ or LE. Gee.... letGs all do what the lemmings are doing, maybe thereGs a place for us at the bottom of the cliff.

One fallacy of coverage in LR is the over subscription to the belief that the big carriers are the only game in town. There are lots of small and hungry service providers, startups you name it out there that donGt give tinkers damn about what Quest, SBC or any of the others are up to. Matter of fact if the big guys are doing it, better do something else.

Of course, reporting on another point of view is a bit of munching on a hand that is feeding you.

Is this a report about what the Lemmings are doing or where the guy/gal with the better idea is heading?
HarveyMudd 12/4/2012 | 11:03:56 PM
re: Report: Who's Ready for Rebound? Cisco main businees in the enterprise market segment. It sells here and there to carriers. If Cisco can not improve its position in the enterprise market segment, its recovery is not very likely.

Lucent is also not likely to rebound in the next two or three years. Lucent has the market lusture by buying so many junky companies that did not have good products and technologies. The company's shronking workforce might help the situation, but the company is still overstaffed by any standard. Currently Lucent has a workforce of about 70,000 personnel.ucent has still not yet completed the lay offs. This alone is going to hurt Lucent. Lucent's current revenues are about $20 billion. The company will not turn profitable unless it revenues climbs to $30 billion and reduces the workforce to 50,000 personnel. Unless these objectives, there will be no recovery for Lucent.

Tellabs recovery is equally questionable as its products are old and have lost their lusture ion the market place. Its rececent acqusition of a DWDM start-up company is also not likely to help the situation.

Nortel, in my opinion, has very good chance of recoveryas it has very rich set of products to satify the carriers and the enterprise market segment.

Alcatel recovery, after years of mismanagement and acquistion of bad companies, is very questionable.

The vast market for a new breed of Class 5 switches cannot be ignored. In this market Nortel and Lucent will share the limelight.
sowhat 12/4/2012 | 11:03:55 PM
re: Report: Who's Ready for Rebound? its really surprisingly to see that no one is talking about start-ups!! or is it that not a single start-up is going to survive, let alone flourish, in the coming years??? what about companies like Pluris, Allegro or Timetra?? is it not possible that one of these will create a wave??
Bill Johnson 12/4/2012 | 11:03:54 PM
re: Report: Who's Ready for Rebound? Still kissing that Lucent ass, huh Harvey!

I think this is the first time I agree with you on a point that you made and that is the fact that Nortel is better positioned at this point then the other "big" players.

Lucent, however, will not be there due to their lackluster spin-offs. Everyone speaks of the poor choices in acquisitions but fails to mention the internal splits. One bright point for Lucent is that Agere will be absorbed back into the family around July. Hope you did not buy their stock Harvey.
manoflalambda 12/4/2012 | 11:03:53 PM
re: Report: Who's Ready for Rebound? "shronking workforce" hehe, I like that...

Salute,
Manoflalambda
skeptic 12/4/2012 | 11:03:52 PM
re: Report: Who's Ready for Rebound? its really surprisingly to see that no one is talking about start-ups!! or is it that not a single start-up is going to survive, let alone flourish, in the coming years??? what about companies like Pluris, Allegro or Timetra?? is it not possible that one of these will create a wave??
-----------------
Pluris is going nowhere. The combination of
being a really old startup and a technology
story (multi-stage switching) that isn't very
attractive just isn't going to lead anywhere.

What you are going to see with the startups is
an endurance contest. Whoever can last the
longest with the least money is going to win.

But its probably going to get to the point where
there are only one or two survivors in each
market space. And in some market spaces, maybe
no survivors at all.
laserbrain 12/4/2012 | 11:03:51 PM
re: Report: Who's Ready for Rebound? since there is no catalyst for V-shape rebound, expect a slow, rolling, bump-along-the-bottom drift for the forseeable future - maybe 24 more months. That's when you finally depreciate all the gear that no one's using today. We're starting to get some of the fat out of the channel, but it is still sitting in closets all over the world, not implemented.

I'd like to see an analysis of who makes it thru those conditions. zero growth for 2 more years, with tiny pockets of interest.
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