Cowen Survey finds Deceleration in Access Concentrator spending plans; but
strong router spending plans
The rapid growth of the Internet continues to drive demand for access
concentrators and routers. However, a recent Cowen survey of 28 ISPs serving
over 7.8 MM subscribers points to a slowdown in subscriber growth and
access concentrator spending. The expected median spending increases on
an annualized basis is 44%, down from 70% in our last survey. Cisco has
gained mindshare as an access concentrator vendor, with 14% of total mentions,
compared to only 4% in our 11/96 survey. Router spending intentions are strong,
up at an annualized rate of 51%, bolstering bullish trends at strong buy-rated
Cisco. The rate of spending growth is much higher than suggested recently
by industry analysts and Cisco's guidance. 56K trial modem and deployment
intentions are strong, lending upside to buy-rated 3COM. The slowdown in
spending and lower price/port keeps us neutral on ASND. In addition, a
separate analysis shows that the excess demand for access concentrator ports
will likely be satisfied sometime in the middle of C98. The survey also
showed exceptionally high trial rates for new access concentrator products
from CSCO, ASND, and COMS. Report published 8/13/97.
1) CSCO gaining mind share in access concentrator market
Strong-buy rated CSCO stands to gain handsomely as the primary router
vendor to 82% of the ISPs sampled. CSCO is also poised to gain share in
the access concentrator market.
2) Access concentrator market likely to slow by Mid-98
The reduced spending rate is partly a reflection of ISPs now adding ports
on the margin for upgrades, incremental demand, and incresed usage. This
is in contrast to huge spending increases last year and the 1st half of this
year as they built out their networks.
3) ISPs show strong router spending intentions and strong trial intentions
with ASND's and CSCO's new routers
The expected increase in router spending weighted by subscribers is
41% on an annualized basis. This is much higher than in our CSCO financial
model, implying upside for CSCO. Interest in ASND's GRF is also strong.
(Note that GRF revenues only contributed 4% of Ascend's stand-alone revenues
in the 2nd quarter. The GRF contributed 3% of the combined company's revenues.)
4) 56K deployment to be largely completed by early 98, favoring COMS
This points to upside for COMS, the leader in the modem market, with about 40%
share.
From Chris Stix & Vijay Rajamani of Cowen |
