Where's the Squeeze?

2:35 PM -- This year is going to be very painful for some of the telecom vendor community -- it's just hard to know who's going to take the biggest knock.

Here's the state of play. The consensus among the major vendors, based on their conversations with carrier customers, is that the value of the global market for infrastructure and associated software, systems, and professional services, is going to be roughly the same as in 2009. Yet we have a few companies –- notably Huawei Technologies Co. Ltd. and Nokia Networks -- projecting, with some confidence, sales growth in 2010. (See Huawei Doubles Profits in 2009, Huawei Claims 2009 Revenues of $21.5B, and NSN Shrinks Again, But Q2 Looks Rosier.)

This suggests a few basic potential outcomes.

First, that the overall market will actually grow, much to everyone's surprise and joy.

Right. And maybe I will win the lottery and fulfill my lifetime ambition to farm chickens and read the top 1,000 classic novels. Let's set dreams aside.

Secondly, those companies predicting growth could be mistaken -- though I doubt that.

Thirdly, that some of the other large players, such as Ericsson AB (Nasdaq: ERIC) and Alcatel-Lucent (NYSE: ALU), might feel the heat and see a decline in 2010 revenues. Again, I think that's unlikely: Ericsson looks very strong at the moment -- we'll see how it started 2010 tomorrow (April 23) when it reports its first quarter -- and AlcaLu appears to have stabilized.

The most likely outcome is the fourth, and it's a bad one for the industry -- that the mid-sized and smaller vendors will take the brunt of the big players' growth, and, as a result, will be able to compete even less with the muscle of the leading handful of players that can offer a mix of hardware, software, and supporting services (especially managed services).

I hope I'm wrong, but all the signs point toward a widening gap between the vendor premier division and the rest of the market in 2010.

— Ray Le Maistre, International Managing Editor, Light Reading

digits 12/5/2012 | 4:38:49 PM
re: Where's the Squeeze?

Am I wrong? Will some of the big players take the bulk of the hit? Or will it be the vendors with $200m-$1 billion in annual sales that will feel the biggest pain?

paolo.franzoi 12/5/2012 | 4:38:47 PM
re: Where's the Squeeze?


Your not wrong.  It really boils down to a company by company picture and for the large companies it is product line by product line.

Let me use Ciena as an example.  Many of its product lines are going to shrink, but overall the company will grow.  Really the shift how business is won or lost is impacting how the investment model is done.  That is causing a shockwave in product ROI definitions.  In the end, the service providers are really limiting their ability to get newer and better technology in order to save operational expenses.

What that means is one really should not be applying Tech P/E ratios to telecom equipment vendors but more like industrial products. 



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