Bloom is off the optical rose, keynoter says
By Craig Matsumoto
EE Times
(11/01/00, 12:20 p.m. EST)
WASHINGTON — In an upbeat but sobering keynote address to the Next Generation Networks conference, John McQuillan told network vendors that they could still get rich even though networking stocks have fallen in the past year.
In the so-called new economy, old investment rules still apply, and that's not necessarily bad, said McQuillan, president of McQuillan Ventures and chairman of organizer of the NGN conference.
"In '95 or '96, we had the revolutionary forces come into play," McQuillan said. "We've had another turning point this year, heavily driven by financial considerations. But after all, we do have to have profitable companies to help us build these networks."
Using a "revolutionary" theme, McQuillan illustrated his point by showing the icons of Communist society: Marx, Lenin, and Mao. In discussing several aspects of the industry, he listed in each case the "thesis" of old-world networking and the radical "antithesis" of the new economy, and concluded every time that the reality lay somewhere in between.
For example, some believe incumbent carriers will run next-generation networks that are simply bigger and faster than today's networks, McQuillan said, while an opposing view holds that future networks will be built by entirely new companies with entirely new technologies. McQuillan's middle view sees an industry of "creative destruction," where traditional leaders remain large, but only through the constant acquisition of startups with new ideas.
Sticking to his metaphor, McQuillan said, "We've had several years of revolution, and now the incumbents have figured out how to start their own counter-revolution."
The cycle continues in part because of the flow of venture capital, which has created a glut of startups, which has led to the industry's frenzy of acquisitions, McQuillan said.
"Probably the odds of a networking chip company having an IPO are 50 to 1," he said. In the optical networking space, where McQuillan counted more than 200 startups, the odds are probably not so long, but the acquisitions are likely to stay plentiful, he said.
Business slide
"The turning point came a few months ago when a few of the CLECs [competitive local exchange carriers] stopped paying their bills," he said. CLECs were startup challengers to incumbent telephone carriers, and their need for new equipment helped fuel the networking sector. But CLECs have begun to fail, leading to lost business for the likes of Cisco and Ciena.
That's not to say things are bad. Nortel Networks, for example, showed year-over-year growth of 90 percent for its optical Internet business for the quarter ended Sept. 30. But Wall Street apparently had expected much more from Nortel and the rest of the industry, and networking stocks have sagged during the past several weeks as a result.
Many NGN participants and attendees dismissed the drop in stock prices, saying it derived from investors' impatience and high expectations, not from the actual health of the networking industry.
"Wall Street looks at very short windows, looking at companies that aren't having the kind of fiscal numbers that [investors] want and pulling the rug out from under them while they're trying to build their businesses," said Nathan Kalowski, vice president of marketing for privately-held startup Kenetec Inc. (Naugatuck, Conn.).
For CLECs to reach stability, they have to collect customers in thousands of multitenant buildings, a process that takes time, Kalowski said. "It's a lucrative opportunity. The issue is that it's capital-intensive opportunity," he said. |
