Analysts, however, paint a gloomy picture. They say the market is down a lot this year and isn't likely to bounce back anytime soon. Before it does, a big shakeout is likely, they add.
Softswitches were the darlings of the telecom boom, since they're designed to combine voice with data, creating new kinds of services and streamlining the management of converged networks. The segment filled will startups seeking to compete with existing voice switch suppliers, like Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Corp. (NYSE/Toronto: NT), which offered their own alternatives in the hopes that established carriers would rip and replace their PSTN gear.
But the capex famine has dashed the hopes of many companies, raising questions about the segment's future. "The softswitch market is in a bit of a mess right now... The major problem is that the RBOCs are not ready to start shelling out for these devices... and the existing players have just about tapped out the market for Internet offload and other applications that were representing the bulk of sales," writes Joe McGarvey, senior analyst at Current Analysis, in an email to Light Reading today.
But there are signs of hope as well. Indeed, recent headlines are a mix of good, bad, and puzzling. Here's a rundown, bad news first:
- September 24: Sonus Networks Inc. (Nasdaq: SONS), the only publicly held company dedicated to softswitches, forecasts a 60 percent revenue slide this quarter. Sales are expected to fall to an estimated $7 million for the three months ended September 30, compared to $21 million for the quarter ended June 30. Those June results also were down a whopping 60 percent from the same time in 2001. The company, which has undergone sizeable layoffs (see Sonus Lays Off), attributes the plummeting sales to ongoing gloom in the telecom market. Sonus is set to announce its earnings tomorrow, October 9.
- October 8: [email protected], a maker of call center applications, announces that its latest product contains a softswitch capable of translating among a range of different voice and multimedia protocols.
- October 7: Telica Inc., a privately held company recognized by most analysts as a key player, announces a $10 million supply contract with KMC Telecom, an alternative carrier with services in 35 U.S. cities. The telco plans to use Telica's Plexus 9000, which features both a softswitch and attendant gateway functions, to roll out new services (see KMC Deploys Telica Switches). Telica claims to have over 25 customers, even though it's announced about 14, including a quintet of alternative service providers announced September 24 -- the same day Sonus warned.
- October 2: CommWorks, another private company, announced last Wednesday that it's been approved for use on the network of Deutsche Telekom AG (NYSE: DT). CommWorks also counts WorldCom Inc. (OTC: WCOEQ), Telecom New Zealand, and several U.S. ISPs among its customers.
Others say the news shows how companies like Telica have sought and found alternatives to RBOC traction that's not forthcoming. "Given the overall economic malaise, a lot of suppliers have started targeting the cable market and independent operating companies," says Kevin Mitchell, directing analyst at Infonetics Research Inc. He says more than 1,000 rural LECs in the U.S. are looking for new equipment that gives them an edge.
Observers generally agree that the strategy of selling to alternative carriers will only go so far, though. McGarvey of Current Analysis says sales of softswitches to cable suppliers are likely to take off before the RBOCs start replacing their Class 5 residential voice equipment, "but it's going to be a slow climb and it's doubtful that the market will be able to support all of the players that are going after it."
In the meantime, McGarvey sees new kinds of products emerging, such as softswitches designed to replace old Centrex services with new "hosted PBXs." In this space, companies such as BroadSoft Inc. might make good with server-style products geared to specific applications (see BroadSoft OKs Ingate SIParator).
Predictions vary as to when the softswitch ship will finally come in. "Late 2003 or early 2004 if we're lucky, but later if the economic downturn continues to worsen," says IDC's Valovic. In the meantime, he says there will be ongoing consolidation in the form of mergers -- and outright failures. "It has to happen for things to move forward," he says.
Softswitches were the topic of a recent Light Reading Webinar and will be featured in an upcoming report. Click here for the archived Webinar.
— Mary Jander, Senior Editor, Light Reading
www.lightreading.com Want to know more? The big cheeses of the optical networking industry will be discussing softswitches at Lightspeed Europe. Check it out at Lightspeed Europe 02.