Now here is a provocative statement: From Network World.
"I don't see any way the telecom industry in the U.S. is going to evolve in
such a way that the result is going to be a large-scale purchase of Ethernet,"
says Tom Nolle, president of consultancy CIMI Corp. in Voorhees, NJ. "I
give Ethernet six months before the whole thing is gone. You can't map
[time-division multiplexing] infrastructures to Ethernet. You can't sell leased
lines over Ethernet. This just is not going to work. ATM is going to
dominate."
Optical Ethernet firms brave stormy industry seas
While some anticipate a rebound, others say
Ethernet services won't cut it.
By TERRI GIMPELSON
Network World, 05/07/01
LAS VEGAS - Despite reduced capital
spending from their customers, metropolitan
optical Ethernet companies exhibiting at this
week's NetWorld+Interop 2001 show say
they will not stray from their original business plans in an effort to create or
stimulate demand for their products.
The companies say their initial business objective - making and selling
equipment that lets service providers deliver Ethernet services to companies
- is still compelling enough to investors and customers that they can generate
enough capital and revenue to ride out the current economic slump. The
consensus among metropolitan Ethernet vendors is that companies targeting
long-haul networks will suffer most from the industry downturn.
Some have been hit harder than others. Astral Point has had to lay off 20%
of its staff and halt development of one of its two product lines to conserve
venture funding.
And ADVA Optical Networking has had to lower its revenue guidance for
2001 by about 10%, which is still nearly double the $60.6 million realized in
2000.
"There was a lot of money spent in 2000 on scaling for future capabilities,"
says Brian McCann, ADVA's chief sales and marketing officer. "Now that's
only going to be done out of necessity."
"The rules of the game have changed," adds Agnes Imregh, vice president of
marketing at LuxN.
Vendors are hopeful the industry will start to turn around in the fourth
quarter of this year, or the first half of 2002. Some reputable and influential
Wall Street firms, however, say the industry is just closing the first year of
what could be a three-year slump (See story).
McCann admits that visibility is murky.
"No one really knows when this will be over," he says. "It's going to take
cash to get through this storm because what's been projected in sales is
already softer. Real companies with real products to deliver are the ones
that are going to survive."
"Real" is not in the vocabulary of some analysts when they consider the
business case for Ethernet metropolitan-area network services. They say
these companies haven't seen the worst of it yet.
"I don't see any way the telecom industry in the U.S. is going to evolve in
such a way that the result is going to be a large-scale purchase of Ethernet,"
says Tom Nolle, president of consultancy CIMI Corp. in Voorhees, NJ. "I
give Ethernet six months before the whole thing is gone. You can't map
[time-division multiplexing] infrastructures to Ethernet. You can't sell leased
lines over Ethernet. This just is not going to work. ATM is going to
dominate."
Undaunted, vendors press on.
Between 10% and 20% of ADVA's metropolitan optical business is
Ethernet. ADVA is also negatively affected by a slowdown in spending on
storage-area networking, according to a recent credit report.
"Enterprise customers in both the U.S. and Europe appear to be delaying
the deployment of large storage projects that would require the use of
[dense wave division multiplexing] Fibre Channel, a key focus of ADVA's
enterprise business," the report stated.
Service providers are also cutting back deployments because of tight capital
markets that contributed to widespread failures in the competitive local
exchange carrier ranks. This has prompted LuxN to concentrate
development on lower-cost optical devices that generate a quick return on
investment (ROI), according to Imregh.
"The customer always has the option to just do nothing," Imregh says. "Two
years ago the industry chased the hottest start-up carrier. That's not as
meaningful as it used to be anymore. Wall Street is now rewarding good
ROI on specific markets."
Imregh says LuxN is insulated a little better than some of its competitors
from the rough economy because the company focuses sales on service
providers that have and are making money. Conversely, service providers
also want to deal with established suppliers, says Nan Chen, director of
product marketing at Atrica.
"The slowdown in the market means [service providers] are choosing to
invest in only those companies that they believe are implementing the right
technologies and who have the right team in place to be successful," Chen
says. "When times are good, there is not as much incentive to look for ways
to reduce costs. Because optical Ethernet technology offers a compelling
cost advantage, we are seeing many of the pro-viders actually accelerate
their [spending and buildout] efforts, particularly the incumbents."
CIMI's Nolle says this air of optimism is "crap" and warns that metropolitan
Ethernet vendors are only fooling themselves.
"It's going to get much worse for these companies," he says. "Major service
providers know that ATM works, and it goes back to the issue of what
kind of equipment is on the customer premises. I bet that if you took a
sample of say, the Fortune 500 companies, you wouldn't find a single buyer
of Ethernet metro service."
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