You are right. However:
IMHO
Large Cap Tech = NT, CSCO, LU, T, WCOM
There has to be a reason behind the comments.
Are they thinking that the internet is dead? No.
Are they thinking that there will be no demand for fiber? No.
Are they thinking we will be in a 3 year recession? No.
So what are they thinking? IMHO:
The really big cap businesses are neck deep with legacy stuff. Businesses that CSCO and NT bought or developed and were once on the cutting edge of something like DSL are now dead meat and still a part of CSCO or NT. Technology is moving on much faster toward optical switches and the like. CIEN braggs that some of their devices will save a company 90% of their current cost. ML and others are guessing that it will take a long time for the really big boys to adjust. Added to this is the problem that LU, CSCO and NT are the prime suppliers of a lot of equipment that they know will become obsolete but that they are contracted to support.
Businesses that can adapt more easily to the changing market are:
AMCC, PMCS, JDSU, BRCM
The people who support this idea say that NT and the other big guys will try to cut down the size of their business and farm out more of the components in order to keep a reasonable amount of profitability.
Below is a interesting article on the trend.
The only thing I worry about are things like:
Last year, Nortel had surpassed Lucent as the dominant supplier of the world's optical transport gear. These are laser-based fiber optic boxes that shoot lightwaves through networks at speeds of 100 billion bits per second. These transport boxes are affectionately called OC-192 or 10-gig devices. As a possible sign that there is less demand for 10-gig equipment, TheStreet.com found some of these once-coveted parts in the repossessed equipment market.....have developed optical switches that are run by sophisticated software that serves as the brains or operating system of a network. These switches have demonstrated an ability to manage network traffic routes and, if you believe the developers, effectively cut network operating costs by as much as 90%. The cost savings presumably come from the elimination of numerous electronic boxes and attendant devices.
I worry a little because the OC-192 market is a major one. Also, as we move more and more toward full optical switching the parts may become cheaper and cheaper. However, AMCC works with CIEN and has the best management team in the broadband semi field. They are the last to get hit and the first to recover.
Summary: The broadband semi field is moving at light speed. People like AMCC will be in more demand, not less, as large businesses do not want to get into the component business less they suffer the fate of LU, CSCO and NT. AMCC, if they are smart, will be able to adjust their business to the demand and keep a good profit margin. AMCC is probably the best of the breed.
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thestreet.com
Optical Bait and Switch? Missed Product Cycle Costs Nortel Dearly
By Scott Moritz
Senior Writer
2/16/01 5:44 PM ET
Having missed out on a key product shift, mighty Nortel Networks (NT:NYSE - news) is now stuck pushing air conditioners during the telecom industry's long, hard winter, observers say.
As shortfall warnings from Nortel and its suppliers JDS Uniphase (JDSU:Nasdaq - news) and Corning (GLW:NYSE - news) punished the networking sector Friday, some signs pointed to a dramatic shift in optical networking product demand as the culprit. Nortel's failure to heed this shift could leave it in the same straits as rival Lucent Technologies (LU:NYSE - news), which missed an earlier product cycle, ceding key ground to Nortel and leading the equipment maker into its current morass.
Among the patterns investors and industry observers saw emerging from Friday's networking meltdown was a rather glaring void in Nortel's nearly comprehensive product line: The company lacks an optical switch.
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With cash in short supply, phone and Net services companies have slashed jobs and trimmed costs, as many are seeking to preserve liquidity and keep creditors at bay. These equipment buyers, who sit atop the sector's cash-supply pyramid, have accordingly begun to shift their purchases away from gear that expands their networks to gear that operates new networks.
This trend was expected to play out incrementally over the coming years, but some analysts say cash constraints have hastened that move. And Nortel, with its Xros optical switch estimated to be still a couple quarters away from release, isn't exactly cashing in on the changing product cycle.
"In 2000, a lot of carrier spending went to network buildout and the addition of a lot of transport equipment," said a Wall Street analyst who currently has no ratings on these stocks and asked not to be identified. "But now they are getting far more interested in ways to operate and optimize those networks." His firm has done no underwriting for Nortel.
Passing the Baton
Last year, Nortel had surpassed Lucent as the dominant supplier of the world's optical transport gear. These are laser-based fiber optic boxes that shoot lightwaves through networks at speeds of 100 billion bits per second. These transport boxes are affectionately called OC-192 or 10-gig devices. As a possible sign that there is less demand for 10-gig equipment, TheStreet.com found some of these once-coveted parts in the repossessed equipment market.
Ciena, which also makes transport products, has the market lead in optical switches and said Thursday that it expects its switch sales to exceed 10% of its sales this year. The Linthicum, Md.-based all-optical shop lists 11 customers for its CoreDirector switch, with big-spender Level 3 (LVLT:Nasdaq - news) the most recent addition to the list.
Ciena's president and chief operating officer, Gary Smith, said the shifting winds in the industry are moving firmly at his company's back. Some analysts agreed. "Ciena and Sycamore are in pretty good shape in terms of what they offer and where the market is headed," said the unnamed Wall Street analyst.
Nortel's CEO John Roth continued to deny that Ciena was swiping market share from his company. But to support his point, Nortel held up market-share figures for the transport products. Nortel cannot gauge its optical switch market with no optical switch to offer.
A Nortel spokesman couldn't resist a parting shot at a rival upstart. "It's easy for [Ciena] to show growth; they have a smaller base," the spokesman said. "They are very small, their revenues are $1 billion a year ... we make that in two weeks."
Taking a Managerial Role
Both Ciena and Sycamore (SCMR:Nasdaq - news), along with closely held Tellium, have developed optical switches that are run by sophisticated software that serves as the brains or operating system of a network.
These switches have demonstrated an ability to manage network traffic routes and, if you believe the developers, effectively cut network operating costs by as much as 90%. The cost savings presumably come from the elimination of numerous electronic boxes and attendant devices. Optical switch fans also blow the revenue horn, saying the smarter boxes can speed up a service provider's response time, allowing it to sell capacity in lucrative short-term blocks as opposed to the traditional long lead times and long bandwidth contracts.
To be sure, the nation's sagging economy may play a larger hand in the equipment spending shifts and slowdowns. And in that sense even Ciena, which was hit less than its networking brethren Friday, remains very vulnerable.
"Ciena and Sycamore are trying to lead the way, but the question is whether the carriers are going to be able to buy anything at all," says Bill Trent, a money manager with New Jersey's employee retirement funds. "The idea that they had to keep spending to stay ahead of their competitors has gone away."
"Now," says Trent, who has positions in Ciena, Nortel, Sycamore and Lucent, "the carriers are probably not going to spend until they see the monetary advantage." |
