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Optical/IP

Vendors Accessorize Customer Nets

NEW YORK -- Equipment vendors gathered for the last day of Salomon Smith Barney’s Tech2002 Industry Conference in New York were all pretty much singing the same, melancholic tune today.

Far removed from the optimism and hubris that characterized so many of these conferences in the past, presidents and CFOs of five different equipment vendors stood almost humbly on their podiums outlining their views on where they see the market heading and how they plan to get a piece of it.

While the vendors, Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI), Foundry Networks Inc. (Nasdaq: FDRY), Lucent Technologies Inc. (NYSE: LU), Nortel Networks Corp. (NYSE/Toronto: NT), and Riverstone Networks Inc. (Nasdaq: RSTN), produce different network equipment and address a range of different markets, their overall message was the same: Forget the miracle products that transform a customer’s network frog into a next-generation prince overnight. Faced with the new market reality, products that can be added to the existing infrastructure to allow incremental growth are the way to go.

"Equipment has to fit into the overall network, and must provide cost-savings and/or increased revenues," said Janet Davidson, the president of Lucent’s Integrated Network Solutions Group. “You can’t just be a box-player… You have to have a game plan.”

Archrival Nortel couldn’t agree more. Talking of the changeover from Asynchronous Transfer Mode (ATM) to Multiprotocol Label Switching (MPLS), Nortel’s president of metro and enterprise networks, Frank Plastina, insisted that it will be a very gradual migration. “Right now, service providers will stick to ATM and evolve towards MPLS,” he said in his keynote speech this morning. “If you’re going to a service provider with an all-ATM switch solution or an all-MPLS solution, you’ll still lose.”

In the midst of a market that is looking more and more like a gory scene from a slasher film, the vendor execs were doing their best to emphasize the positive: Although customers may not be looking to make the leap of faith into next-generation networking now, they are still preparing their networks for a future transition.

“We see a lot of customers upgrading their networks today to deploy voice over IP next year,” Michael Iburg, Foundry Network’s treasurer said. According to Foundry CFO Tim Heffner, the company’s switch sales rose by about 50 percent last quarter, although the customers were buying a lot fewer line cards to fill them with. Since Foundry’s boxes only hold Foundry line cards, Heffner says that this represents a true opportunity for the company, securing future sales. “Right now, no one’s doing huge buildouts."

In comparison to many other vendors, Foundry has less reason to complain about the current market situation. While the company used to rely mainly on sales to service providers, it now claims to get about 80 percent of its revenues from enterprise customers, which have been hit less hard by the downturn.

According to Nortel’s Plastina, the service provider market isn’t going to get better anytime soon. In his speech today he said Nortel expects spending in the global telecom market to remain flat or decrease next year. “Our new breakeven point was set in that context." On the other hand, he claimed Nortel’s enterprise business remains healthy (see Nortel Lowers Outlook).

Other vendors are not only refocusing their products to accommodate more incremental growth, but also shifting their target market away from the struggling service providers.

“When we look at our business model, we think ‘great long-term market,’ but shorter term we need to find [revenue sources],” Riverstone CFO Bob Stanton said in his presentation. Riverstone, which only a few weeks ago announced that it was laying off about a third of its staff and cutting its revenue forecast for its second quarter from $30 million to between $10 million and $15 million (see Riverstone Stock Sinks, Company Shifts), has seen its source of income dry up as the service provider market it targets has drawn its purse strings ever tighter. The company recently revealed that it will be shifting some of its focus to enterprise customers.

“What a difference a year makes,” were the first words of Stanton’s presentation. “By the time I get here next year, hopefully it will be a different picture for us.”

— Eugénie Larson, Reporter, Light Reading
www.lightreading.com
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BobbyMax 12/4/2012 | 9:48:42 PM
re: Vendors Accessorize Customer Nets Because of the availability of cheap money many vendors find it easy to sell new products much more easily than doing innovative work of improving the existing technology or products. Cheap money from VCs have caused commotion in the industry.

One classic example is: SONET/SDH ring vs, Resilient Packet Ring. The resiliency, maintenance features of well known and well understtod. But some very minor companies (e.g., Lantern Communications and others) announced RPR as an alternative to SONET/SDH although the next generation of SONET/SDH devices are going to be cheaper and much more efficient. Large companies like Cisco have also implemented RPR without addressing the technical merits of the technology.

There is so much misinformation and exploitation of customers that it has become very easy to introduce new technologies and products regardless of its merit.

Some unscrupolous vendors have been attempting to convince RBOCS to dismatle ATM network and instead rely on MPLS. THese vendors do not tell the customers the poroblems that MPLS has with respect to reliability and scalability. Thousands of sales people from many companies misrepresent the technology and its usability.
Abby 12/4/2012 | 9:48:13 PM
re: Vendors Accessorize Customer Nets What?s so aggravating is to realize is that the only low hanging fruit is the cash cow products designed over 10 years ago, still milking the base of the U.S. Telecom infrastructure, while some of the best innovative technology being developed today must go abroad to survive America?s economic downturn. Can we get an act of congress in an election year to straighten out our telecom woes?
willywilson 12/4/2012 | 9:48:11 PM
re: Vendors Accessorize Customer Nets What?s so aggravating is to realize is that the only low hanging fruit is the cash cow products designed over 10 years ago, still milking the base of the U.S. Telecom infrastructure, while some of the best innovative technology being developed today must go abroad to survive America?s economic downturn. Can we get an act of congress in an election year to straighten out our telecom woes?

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The best way to straighten out the telecom woes, as you put it, would be to identify and prosecute those several hundred executives and financiers who engaged in corruption. They should be jailed and fined, and the proceeds of their fraud should be traced and seized.

From what I've seen, other than bagging a handful of scapegoats, this will not happen. As a result, I'm afraid we are in for a very long, slow trudge.
wilecoyote 12/4/2012 | 9:48:09 PM
re: Vendors Accessorize Customer Nets I agree with Willy. I think we are in for a long down turn in the carrier infrastructure side of things. Look to 2005 or 2006 before any real growth happens and if you're a startup selling to carriers, look to RLECs and utilities, and look internationally from day one. Oh and look for big OEMs cause even they ain't gonna bet the network on a startup.

Think data center. Think enterprise. Think Fibre Channel and Ethernet at 10 gigs. Those are the opportunities.

Time to go visit Unstrung and Byte and Swith, though storage and wireless are almost as screwed up as companies on lightreading.

Here's a tip for my friends in these boards: think semiconductor, and think software. The days of systems opportunities with real upside are nearing an end. Too capital intensive.
deepciscothroat 12/4/2012 | 9:48:08 PM
re: Vendors Accessorize Customer Nets Think Cisco
Lite_Rider 12/4/2012 | 9:48:07 PM
re: Vendors Accessorize Customer Nets Abby:

The greatest thing about living in a capitalist society is the MARKET is resolving our telecom woes as we speak.

Watch out for the RBOC's they keep having a shrinking market.

I refer you to the following article:
http://www.forbes.com/home/fre...

It outlines the impending [significant] RBOC contractions on the horizon. It is an OUTSTANDING article.

In my opinion, given 4 or 5 years, you will see MSOs in the driver seat AHEAD of the RBOCs.

willywilson 12/4/2012 | 9:48:06 PM
re: Vendors Accessorize Customer Nets Think Cisco

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Problems: Their boxes are not carrier class. They suck at voice. They're still arrogant as hell.
willywilson 12/4/2012 | 9:48:06 PM
re: Vendors Accessorize Customer Nets Look to 2005 or 2006 before any real growth happens and if you're a startup selling to carriers, look to RLECs and utilities, and look internationally from day one.


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The largest RLEC is less than one-fifth the size of the smallest RBOC. The "major" RLECs are extraordinarily cheap, extremely conservative with respect to new technology and have decision-making processes that make the RBOCs look like speedy gonzalez.

Oh yeah, every now and then some startup can coax a press release out of some pinprick RLEC out in the middle of nowhere, but there's never ever any significant volume. Overseas? Not in Europe, where the governments are trying to keep Alcatel, etc. alive at all costs.

Japan? Think again. China? Sure, they'll buy for a while until they can figure out how to steal the idea. Utilities?? Omigod, they make the RLECs look like the last o'the big spenders. Now that Enron and Williams fell on their faces, does anyone actually think utilities are going to continue to pursue telecom? ROTFL !!!!

The real opportunity was CLECs, and then ILECs in reaction to CLECs. Unfortunately, most of the CLECs were fraud artists. So it goes ...
wilecoyote 12/4/2012 | 9:48:05 PM
re: Vendors Accessorize Customer Nets RLECs are federally funded, Willy. And those dollars come with strings attached: deploy broadband to businesses and consumers. Don't write them off is my advice.

Ask Atrica and Appian about Japan. Ask Extreme which still sells about 30% of their gear in Japan. Should we forget Japan? NTT is an innovator and will buy from startups.

MSOs are now challenging RBOCs and the wireless operators will challenge too with 802.11. RBOCs better not fall asleep at the...that one's too easy.

There is business out there. If you're willing to work, there is business to be had. But it isn't in traditional places.

CLECs came onto the scene for the same reason I switched my local service, internet and cell phone from SBC to ATT in one phone call. RBOCs themselves are cheats: look at the billion dollar lawsuit over DSL that SBC just settled as an example.

CLECs will be replaced by a combination of competitors to RBOCs because the RBOCs haven't ever, and will never, change with the times.
Ramu3 12/4/2012 | 9:48:05 PM
re: Vendors Accessorize Customer Nets re: RBOCs themselves are cheats: look at the billion dollar lawsuit over DSL that SBC just settled as an example.
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I wasn't aware of that...can you provide a link to more info? Was this recent?
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