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Long-Haul Lag Lingers

It may come as no surprise, but let’s make it official: the long-haul market lag is here to stay.

A Probe Research Inc. report released late last week states that revenues for long-haul optical equipment in 2002 have dropped more than 50 percent compared to last year (see A Long Haul for Long Haul).

And Probe says the decline is here for the -- well, let's say it --the long haul. The sector won’t pick up at all until 2004, says Maria Zeppetella, the vice president of optical infrastructure at Probe and the author of the report. She sees revenues in the sector reaching $6.1 billion in that year. Sadly, she doesn’t expect revenues to surpass their 2001 level in the foreseeable future: even in 2007, revenues will total only about $9.2 billion.

Long-haul optical equipment, which allowed carriers to build high-capacity global fiber optic networks, was a focus of the telecom boom in 1999-2001. In 2001, the long-haul sector cashed in $10.3 billion, representing 51 percent of total revenues in the optical market, the report states. In comparison, revenues in the long-haul market will barely reach $5 billion in 2002, accounting for about 45 percent of all optical revenues, says the report.

The report, based on interviews with many service providers, points out several factors contributing to the freefall. Topping the list is the enormous glut of capacity already in the ground.

"The most important reason was over-capacity," Zeppetella says. "If you don’t need any more optical equipment in your network, you’re not going to buy any more. All the long-haul networks are already built."

Unrealistic traffic growth projections from the likes of UUNet receive much of the blame for setting the ball in motion in the first place. These aggressive projections led service providers to overbuild their networks, which in turn led equipment vendors to create large inventories (see Did WorldCom Puff Up the Internet Too?).

Service providers have been forced to come to terms with more realistic average growth rates of about 100 percent annually (compared to the 1,000 percent annual growth rate UUNet was claiming in the late 90s), Zeppetella writes in the report. In addition, she says, service providers have far less cash than they did during the boom years. [Ed. note: Don't we all!]

Other factors that have contributed to the lack of confidence in the sector include questionable accounting practices, investor skepticism, and an inability to offer profitable new data services, the report states. Offering some hope, Zeppetella says that some service providers have at least been indicating that they’re getting more of a handle on how to make data services more profitable.

Another tiny bright spot shining through in the report is that the WDM market outside the U.S. and Europe grew from 2001 to 2002, jumping from $332 million to $403 million. In North America, the WDM long-haul market was the hardest hit.

Looking to the future, Zeppetella observes that the new market reality has changed the focus of R&D, as well. Instead of focusing purely on creating the fastest and coolest technologies, labs are now concentrating on developing products that will cut operating expenses.

— Eugénie Larson, Reporter, Light Reading
www.lightreading.com
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Elvis Doesn't Live 12/4/2012 | 9:19:54 PM
re: Long-Haul Lag Lingers I can't believe that an analyst spent time analyzing the decline of the LH market and LR gave them the time of day for doing it. This reads like a recap of stories that we have read over the past 15 months.

Tell us something we don't already know.

Stick with Voice/IP sweetie, your firm is too late for this market.
Elvis Doesn't Live 12/4/2012 | 9:19:53 PM
re: Long-Haul Lag Lingers You grading along a curve?

My rankings:

RHK: F They have a long way to go to make up for their evil ways in terms of dishonest forecasting and marcom services for clients. Ryan should have followed Linda the Seal out the door into retirement and taken Dana Cooperson with him. Smart technical people though. Expecting yet another layoff after thie week's Star Trekk.

Yankee: C+ They do a lot of shilling for people Too much in bed with AT&T for my taste, they canned their optical people (no great loss) and have forecasts that are way too high. Good IT stuff from what I am told and Berge is flat out one of the smartest telecom people out there.

CIR: B+ They have gone out of their way to lay some lumber to companies which doesn't make them many friends. Their numbers always seemed low compared to other people but as it turns out they were a hell of a lot more accurate than everyione else. Lots of experienced people there with good telco contacts.

CA: B They make comments about stuff that is not always that significant. Nichols is a vendor mouth piece but Anna Reidy knows a good thing or two. They are not a research firm so they are different.

Pioneer: G (Lower than F) Makes Yankee and RHK look realistic if you can believe that one. Going bankrupt I hear.

Dell'Oro= Numbers house but have no knowledge of them otherwise.

Strategies Unlimited: B+ Heck of a lot of smart people over there with respect to components!!!!

Morgan Stanley: A- Good calls on stocks and they have a smart crew. Dave Jackson is very good!!
oc-3072 12/4/2012 | 9:19:53 PM
re: Long-Haul Lag Lingers elvis-

i think you're pretty right on with your review of probe... i give them a c+/b-. what do you think of these rankings:

rhk: b+
yankee: b/b+
cir: c+/b-
probe: c+
current analysis: a-
pioneer: d+ (now that scott is gone)
dell-oro: a-/a

any others?

best,
oc-3072
benson 12/4/2012 | 9:19:52 PM
re: Long-Haul Lag Lingers AgentSmart;

Anyone who would put RHK at the top of the list is clearly smoking something. I and others (optigirl, where are you?) have documented on some of these pages the fraud that has been perpetrated by this gang, but I don't have time to repeat it here. They are the Jack Grubmans of this market. Actually, that is why they have been successful: the financial Jack Grubman'.s needed market analysis Jack Graubman's

As I have written before, I am disappointed with Lightreading for not throwing some light on what occured in the market analysts community during the heyday of the boom.

Benson
AgentSmart 12/4/2012 | 9:19:52 PM
re: Long-Haul Lag Lingers This could make a great LightReading article--ranking the firms that rank service providers & vendors.

Some observations & what I've heard from others:

RHK: B-. For all of their failings & market hype in 2000-2001, they've made some decent progress in rethinking the market. Elvis Doesn't Live certainly is not attending StarTrax this week because if he/she did, this person would recognize this is the best-attended analyst/consulting event in the industry. And RHK had great service provider involvement at the event.

Yankee. C-. While I hear their vendor research generally has been weak and they often hover in the ozone with fluffy ideas, by experience I know they have some good contacts at service providers and generally understand what's going on in the carrier space.

CIR. C. This company forecast the longhaul SONET mux market to explode over the next few years when all the service providers are telling the market they don't want to spend money on that stuff.

I don't have a whole lot to share on other researchers except to say Clavenna always has done a good job of keeping himself informed.



porn starr 12/4/2012 | 9:19:49 PM
re: Long-Haul Lag Lingers I would like to give this research house the benefit of the doubt here, but unless you specialize in colonoscopy, you shouldn't call your company Probe.

Elvis Doesn't Live 12/4/2012 | 9:19:48 PM
re: Long-Haul Lag Lingers AgentSmart has to work as a lower level flack in the PR dept. for a vendor who buys RHK's stuff. No other rational person could say that. Dollars to doughnuts he/she is happy to hear the crap that RHK feeds his/her senior management about how great they are doing in exchange for a nice check every year regardless of how poorly their sales suck or how poorly RHK forecast the market opportunity. My gut says it is either someone from Alcatel, Ciena or Corvis.

Clavenna did a whole lot of cheerleading for Ethernet, CLECS, (now) bankrupt carriers and his forecasts were full of it as well.

twistedcopper 12/4/2012 | 9:19:48 PM
re: Long-Haul Lag Lingers Come on guys, let's get real. All analyst firms are whores.

No grades necessary.

Elvis is on to something with analyst firms = PR departments... let's look at it that way.

Current Analysis = PR for Lucent
RHK = PR for Alcatel
CIR = PR for Ciena
Yankee = PR for Nortel
Telechoice = PR for Tellium (although I think they can stand on their own)

There must be others, but they're not coming to me.

-twisted
optigirl 12/4/2012 | 9:19:47 PM
re: Long-Haul Lag Lingers Hey Twisted, you actually posted something beyond Tellium to the moon....

Analyst PR seems to rotate. RHK's sugar daddy was NT until alcatel came along. Yankee sold out to all of the CLECs until they went out of business and then ponied up to NT, CIR was big on Ciena until they criticized Ciena's wanker of a CEO earlier this year and got canned for their troubles. No word yet on who they like (not they like anyone really)

Question: Who shills for Tellabs? These folks are starting to look good again.
optigirl 12/4/2012 | 9:19:47 PM
re: Long-Haul Lag Lingers Greetings Benson, et al:

I think these are interesting comments and I happen to agree with some of what I see. I will forever remain a skeptic of RHK until the Good Dr. Ryan leaves. Agent "Not So" Smart must be buying some good PR from those folks to make that statment.

The UBS Conference got the top telco and financial execs.

The Sonet market is going to continue to buy legacy gear regardless of what you thought you heard.

Optical God Boxes just won't happen.

By the way, CIR's total optical US LH forecast was maybe $1.1 billion this year and no better next. Sounds like an explosion to me, not.

Yankee stinks but for you to give them a "C-" means you either were not subscribing or they didn't kiss up to you.

Scott kept himself well informed talking to vendors like yourself.

Scenario planning is for those who do not have the intelligence or the courage to make a call and stick by it. Guess that's why they are teaching it at RHK this week.

By the way, Elvis, how many people are they letting go of?







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