Keith:
You know the old line: there are lies and then there are statistics...
Anyway, the saga is a long one, and I do not have the time I once had...
The bubble was caused by a bunch of long haul companies putting a lot of fiber in the ground, and provisioning some of it. Most of it is unlit (not provisioned).
If all that mattered was the fiber, JDSU could close the doors, basically like GLW has (GLW is selling only to China and then at low margin). But dark installed fiber is not the metric, available (lit, provisioned) bandwidth versus demand on a particular route is. And that is hard to know, because you have some routes that are saturated, and others that are barely used.
The best guess is as follows: the service providers will add wavelengths to already provisioned (equipped, amplified) fibers until they reach the limit (100 channels?) of all the provisioned fibers, then they have to provision more fibers. Incrementally adding wavelengths is dirt cheap. So that is what is happening now, mostly.
Provisioning more fibers costs a lot, they like to do a bunch at a time, get quantity discounts on equipment, and save on labor. They light a few wavelengths on each fiber, and fill them up, repeat the incremental process, etc.
So volume sales are the transmitters and receivers right now. Problem is: they are low price and low margin. That's why JDSU is making a big move to China with most of their assembly and test operations. Survival.
Better times are coming.
The thing is: the traffic growth rate is high: 100% per year. I do not know of any other part of the world economy with that kind of forcing function behind it. Pretty soon, they have to provision a lot more fibers (roughly equal to the number they put in the first time, right?), and that leads to better prices and margins, because you are selling amplifiers, pumps, etc (if you are JDSU), and new racks if you are Nortel, Alcatel, Siemens, etc.
The best consensus of what I am hearing is that time is about mid next year. I was tempted to say it would be earlier for JDSU, but no equipment vendor I am aware of is purchasing ahead of booked orders these days.
Same is going for the service providers. It all flows downhill.
Other dynamics: I would watch the cable wars shaping up with AOL and others. They carry the bulk of the ins and outs data-wise in this country (cable modems 2:1 over DSL). I am seeing some interesting moves...I am not sure what it all means, and would appreciate another opinion.
FCC is anxious to give media (hardware) monopoly, but Bush is holding back on public fear of rate increases. This is likely to pop after elections though. Then we could see rate increases and investment, because the payback would (in theory) be there.
-Own |
