Pass the Binoculars

The thing about "visibility" is that it depends on what kind of glasses you have on.

"Visibility" is Wall Street jargon, formerly restricted to research reports, that has suddenly become au courant in journalism and investor circles. What does visibility mean? It's the ability to predict future sales because you've been told about them ahead of time.

Everyone agrees visibility is bad right now. There are two reasons for this:
    1) Short-term sales prospects suck.

    2) Because of the U.S. Regulation FD (Fair Disclosure), American company officials are more tight-lipped than ever.

Witness last Tuesday's Nortel announcement. The sandstorm obscuring visibility has become so strong that even John Roth, the CEO of Nortel Networks Corp. (NYSE/Toronto: NT), admits he can't see a thing. In a prepared statement, he gave up on predicting any sales for the rest of the year, saying that any guidance he could give for 2001 would "not be meaningful."

So, should we panic?

No. In this day and age, the value of visibility in predicting the future health of the technology business – or the stock market – has diminished to the vanishing point. The speed of changes in demand for technology products has outpaced our ability to keep up.

For example, back in early 2000 visibility was good and sales were booming. Conventional wisdown held that the information-driven economy would usher in Techno-Utopia. So what did that predict about the health of the companies and the stock market for 2001?

Well... Nothing. Because it all disappeared, and rather quickly. And nobody – yes, nobody – predicted our euphoric boom would dissipate so quickly.

Yes, we threw a lot of money around. And massive amounts of investment, though much of it got wasted, had the effect of speeding the technological advance. We built a lot in the last five years. Does anybody remember what they average person was doing on the Internet in 1995? Not a heck of a lot. For all the hype and all the criticism of the Internet, information flows faster than ever before.

Technology markets have never been about what's happening in six months. They're about what's happening in two to five years.

That's why Wall Street's limited visibility is a bugbear. Let's not worry about where the money's coming from. Let's worry about what still needs to be fixed. We're talking Technology visibility.

The current hysterics in the telecom world relate to a reduction in capital spending; a temporary "bandwidth glut," caused by temporary overinvestment by telecom companies in their network cores; and a "company glut" caused by the flurry of venture capital activity in 1999-2000 that created far too many startups – most of which still seem to believe they deserve some kind of get-rich-quick equity event, even though most of them still don't have any customers!

All of these problems are short term. The gluts are being worked out right now. The weaker companies will go out of business or be sold for scraps. Inventories will be worked down. The only questions are: How big are the gluts and how long will they last? My guess is they'll be gone by the end of the year – both in terms of product inventories and superfluous companies. Forest fires are nasty but needed for clearing out weeds to enable new growth.

Putting near-term visibility aside, what happens next?

  • Once the weeds are cleared, we're still left with one primary problem in broadband networking: Service providers need to easily provision and charge for new broadband services. Yes, they need to make money.

  • Work will resume on the bottleneck at the network edge – the place where broadband suppliers reach customers. Although it appears that the pendulum of bandwidth supply has temporarily swung to the core, telecom carriers will need to reallocate energy and resources to the edge. End users still aren't getting all the bandwidth they need. This remains a huge opportunity. And once work on the network edge resumes, the bandwidth will fill in all those "glutty" pipes in the core. Then the cycle starts again.

  • The optical networking industry, still in its formative stages, will move toward standardization and automation, necessary steps toward developing the market into a mainstream concept.

  • Realtime information exchange and dynamic business applications will continue to drive the use of global telecom networks.

    In such an environment, it's in everybody's best interest to think about what they're trying to build for the long term – whether one is a CEO, an investor, or an engineer toiling at a startup. How do you fix the problems that still exist – and enable somebody to make money?

    Should we be concerned about visibility? Only if we're blind to the future.

    – R. Scott Raynovich, Executive Editor, Light Reading http://www.lightreading.com
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    Steve Saunders 12/4/2012 | 8:38:02 PM
    re: Pass the Binoculars nice photo, Scott
    Scott Raynovich 12/4/2012 | 8:38:01 PM
    re: Pass the Binoculars I'm obviously not reading the boards.
    soothaandi 12/4/2012 | 8:37:59 PM
    re: Pass the Binoculars Can the happy fellow and his admirer use their binoculars to see where all the quitting VPs and Bosses and Department heads are going?

    Following the money trail was so 90s, looks like follow the executive trails will be the next big game.

    Incidentally it is all happening in the same area Scott is looking for activity in - The Metro Area.
    What's going on here?

    Steve Saunders 12/4/2012 | 8:37:51 PM
    re: Pass the Binoculars soothaandi:

    SAN startups, and service creation outfits (ones that are supposed to help carriers make money from optical capacity).

    I think the SAN market is the hotter of the two opportunities, short-term.

    cfaller 12/4/2012 | 8:37:51 PM
    re: Pass the Binoculars Here's my two cents:

    - the whole idea of a bandwidth "glut" is overblown. It's only a glut in terms of fiber laid in the ground. With lit fiber, that's a different story. Carriers are running out of capacity, rack space, power, etc.
    - there is a huge company glut in the telecom sector, and already we're starting to see a lot of victims. There are simply too many people running around on the service provider end, and those guys aren't going to stop until they run out of cash.

    The correction in the sector has already started, but...we've got a long way to go. The service provider isn't going to be complete for another 12 months.

    So, Scott, my two cents is that you're off by approximately 3-6 months. But then again, there's that whole 'visibility' thing...
    topper 12/4/2012 | 8:37:31 PM
    re: Pass the Binoculars It is a mistake to separate risk and return. The obvious place to focus is on solving problems and making a profit through technical contribution. However, contribution equals investment, and investment demands a risk adjusted return. GǣVisibilityGǥ reduces risk and hence the size of the required return on investment. The estimated time to solve this problem is now about 12 months. It started as a quarter and has increased by three months every month since the start of the year. In this was a software QA project then one would predict that no reasonable result is possible on the current course of action. Next month we will find a few more critical bugs in the system and the recovery schedule will slip another quarter. Something more fundamental needs to change for the trend curve to turnover. When you sit on the surface of an expanding bubble, it looks like accelerating growth in all directions. Vendors, suppliers, service providers, investors all see the same up-and-to-the-right-projections. When the bubble breaks it looks like a lot of nothing. This then is the dichotomy, either we regain some visibility that brings investment back to the industry or we wait for existing technology limits to force the issue. Internet traffic growth does not dictate spending money. Visibility on ROI does. Waiting for better visibility could be a two or three year ordeal. Where are the industry leaders? Who is going to be the 1st to standup and commit to the future? Maybe the fundamental change that is needed is in leadership.

    - An unhappy fellow
    metroshark 12/4/2012 | 8:37:01 PM
    re: Pass the Binoculars More than 95% of the residential Internet access
    is still through modem. Number of new users switching to DSL or Cable modem access is
    still doubling every year. Even if we ignore
    the emerging access technologies like PON,
    fixed wireless, optical-over-air, etc., the
    average last mile access data rate is
    continuously improving.

    Majority of the small and medium businesses
    are connected to Internet or Intranet through
    T1 or slower interfaces. For Internet access
    and e-mail, this is probably just fine for now,
    but outsourcing of applications will drive the
    demand for higher speed access between
    corporate customers and ASPs.

    Bandwidth demand will most likely keep increasing
    over the next 5 years. There is always going to
    be debate about what kind of transport
    can more efficiently scale to meet this demand.
    However, no matter what kind of transport is
    used, there will be demand for higher capacity
    routers at the network edge and higher capacity
    switches at the data center to handle the
    increased traffic volume. Transport systems
    can carry a lot of data without even looking
    at the individual bits, but in order to classify,
    account or filter, we will still need routers and
    Cisco Watcher 12/4/2012 | 8:36:43 PM
    re: Pass the Binoculars Scott,

    When did your father starting writing your column for you? Unless you've aged seriously within the last few months, that picture is not you (then again with the market performing so poorly perhaps it is - though I don't know why'd you still be smiling).

    Scott Raynovich 12/4/2012 | 8:36:42 PM
    re: Pass the Binoculars Indeed, the stresses of tracking the optical networking industry have acclerated the aging process. Call it living in "optical time."
    makers 12/4/2012 | 8:35:01 PM
    re: Pass the Binoculars The risk and return do go hand in hand, and there is a "fundamental" change that needs to occur to flip the curve. The industry leaders need to stand up and convince Wall Street to re-focus those binoculars, but in order to do this, two things need to happen. First, the carriers are going to have to re-focus themselves on providing "quality" service to their customers. They need to step up and make good on the promises of a "quick, risk adjusted return", and the way to do this, is to "Use the technology to it's utmost potential" Fill the bubble with something solid, so if it does pop, the only effect is a short check by the market to make sure it weathered the anomaly, and then back to business as usual. The saying "If you build it they will come" is a misnomer in todays market; "If you build a "good" one, they will come" should be more their line of thinking. Quality will bring quantity, thus revenue, ROI and the coveted visibility. Second, the industry leaders are going to have convince the street that it indeed has reason to move back into the tech markets without prejudice. This will not happen without a substantial effort, and the realization of the above mentioned changes needing to be made by the carriers. The possibility is there for this to occur in the next 12 months, but the leaders are going to have to step up "yesterday"!

    Miley Akers
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