Tech End-Markets : Several warnings and research calls in recent days support the theory that tech
companies selling into the enterprise market are in better shape than those targetting service providers.
This morning, Merrill Lynch said that Brocade's (BRCD) quarter appeared to be on track, and
Robertson Stephens upped its June quarter estimates on Foundry Networks (FDRY). Both firms are
focussed primarily on enterprise customers. Meanwhile, Juniper Networks (JNPR) and two Nortel
(NT) suppliers: Powerwave (PWAV) and Spectrian (SPCT) have all warned in recent days. It is no
coincidence that the end-market for these companies' products is the service provider segment. The
outlook for equipment companies selling into the service provider segment is bleak and getting bleaker.
Service providers continue to slash capex plans, and there is no end in sight -- even 2002 spending
plans are showing continued declines in capex. There will be pockets of strength, but for the most part,
it's going to be a long couple of years for equipment companies selling into the service provider market.
Some of the companies that focus on this market are: NT, LU, ALA, TLAB, CIEN, CORV SCMR,
RBAK, ONIS, AVCI and optical components companies that supply to these firms such as: JDSU,
GLW, and AGR.A. With products like switches and routers, companies selling into the enterprise
segment would seem to be facing the same woes as the aforementioned companies, but their switches
and routers are different products targetted at a different market. The enterprise segment covers a huge
range of firms, instead of focussing on the homogeneous service provider segment, and is therefore less
vulnerable to the problems affecting any one industry. The result is that visibility at networking firms
selling into enterprises appears to be improving, and there have not yet been any high profile warnings
for Q2 in this sector. That does not mean that all is well in the enterprise segment. The heavy investment
of the past few years has created excess networking capacity, and it while this does not preclude some
growth in spending over the next year, it does suggest that any growth will be quite modest. Companies
with an enterprise focus include: CSCO, EXTR, FDRY, and FFIV. Though all of these companies have
some service provider exposure, they are more focussed on enterprise sales. We don't expect them to
roar back to life, but if you are more optimistic on tech and want to take a position, it would at least be
wise to focus on these companies over those with more service provider exposure. - Greg Jones,
Briefing.com |
