IP: Comms recovery seen over next quarter or two

[David Farber <dave@farber.net>]

>From: Dewayne Hendricks <dewayne@warpspeed.com>
>To: "Dewayne-Net Technology List" <dewayne-net@warpspeed.com>
>Subject: Comms recovery seen over next quarter or two
>Date: Tue, 31 Jul 2001 05:23:25 -0700
>
>[Note:  This item comes from reader Mike Cheponis.  DLH]
>
>Comms recovery seen over next quarter or two
>By Will Wade, EE Times
>Jul 30, 2001 (12:27 PM)
>URL: http://www.eetimes.com/story/OEG20010730S0044
>
>SAN FRANCISCO - The consensus among several industry analysts and 
>executives speaking last week at the Robertson Stephens Technology 
>Conference is that the communications market will hit bottom by the next 
>quarter, paving the way for recovery in 2002.
>
>"This sector has been under a lot of pressure," said Arun Veerappan, 
>managing director and senior technology analyst for investment banking 
>house Robertson Stephens, at the San Francisco conference. But the end is 
>in sight. He predicted that the communications, silicon and systems 
>markets will bottom out either this quarter or next quarter and that next 
>year will be one of growth. "The first quarter of 2002 should be the 
>quarter when we see some kind of snapback," he said, with single-digit 
>sequential growth rates for the first half of next year. "And we think 
>2003 is going to be big."
>
>This downturn is different from those of the past, Veerappan said, because 
>previous cycles have been driven by capacity issues. When chip makers add 
>too much production capability, they are faced with a glut of devices, a 
>situation which leads to price cuts and falling revenues. This time, the 
>situation is reversed, with the downturn driven initially by a sudden 
>drop-off in demand from end users. Chief among these are failed Internet 
>sites that are no longer purchasing advanced networking gear.
>
>The Internet boom of the last few years led many chip and system vendors 
>to increase their own production rates, so not only have their end users 
>disappeared, they also find themselves now with more products than they 
>can sell and the ability to make more than they need. "This is uncharted 
>territory for the communications market," said Veerappan. "This is the 
>first demand-driven downturn."
>
>Robert Bailey, president, chairman and chief executive of communications 
>silicon vendor PMC-Sierra Inc., agreed that the downturn will hit bottom 
>before the end of the year, and said that the slump has hit the chip 
>makers evenly, despite differences in product line or technology. "We are 
>all pretty tightly linked together right now," he said. "Because if the 
>systems aren't shipping, nobody sells any parts to go into the system."
>
>One of the common arguments explaining the communications downturn is that 
>there is a glut of bandwidth, making more networking gear redundant. Gary 
>Smith, chief executive of Ciena Corp., debunked that notion, noting that 
>more and more information is shifting onto the global data networks and 
>away from the legacy voice networks. "This is a fundamental shift going 
>on," he said. "There is cause for optimism in the medium to long term."
>
>In the short term, this year will certainly see a decline in the overall 
>optical networking gear market, he said, with total worldwide revenues 
>likely in the $23.4 billion range, down from almost $29 billion last year. 
>Smith said this year's drop puts the market onto a more realistic path, 
>noting that at the height of last year's euphoria, some analysts were 
>forecasting that the optical networking market could reach $80 billion by 
>2004. "That is a big chunk of the entire world's GDP, and rational people 
>have to question that," he said.
>
>Part of the reason for that long-term optimism is the widely held view 
>that there will eventually be just one, massive network, probably based on 
>the Internet protocol (IP) format, used for voice, data and entertainment 
>traffic. Even if it takes decades for this transition - and most analysts 
>think it will - the high-end networking vendors see this as the long-term 
>driver that they are all working toward. "The network of the future will 
>be a new, IP-based network," said Marcel Gani, chief financial officer of 
>Juniper Networks Inc. He pointed out that the current system, with the 
>existing voice network running parallel to the rapidly growing Internet 
>backplane, is both redundant and expensive. "The goal is to move all the 
>traffic to the Internet infrastructure."
>
>Paul Johnson, networking and telecommunications analyst for Robertson 
>Stephens, said that the growth of bandwidth demands are inevitable, even 
>without a so-called "killer application" to drive up the need for 
>bandwidth. "The killer app is just more of the same," he said - more users 
>on the Internet, using it for more things. As an example, he said that the 
>size of files downloaded from the global network has steadily increased, 
>from Web pages and e-mails, to e-mails with attached files, to digital 
>pictures and audio. The move to video will further drive up demand, for 
>both videoconferencing and home entertainment needs.
>
>David Rickey, president and chief executive of Applied Micro Circuits 
>Corp., is even more optimistic than his peers. "We think we've hit the 
>bottom," he said. Judging from the pace at which his backlog grew last 
>year, and then shrank this year due to cancellations, he thinks the worst 
>is over. "Our backlog is now close to zero, and we are seeing a lot less 
>tendency toward cancellations, because there is nothing left to cancel. 
>There is nowhere to go but up, but it sure is a bummer about the $1 
>billion in lost orders."
>



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