Bulls Or Bears: What's In Store For The Internetworking Market In 1998
(12/30/97; 6:38 p.m. EST)
By John T. Mulqueen, InternetWeek
The internetworking market may be entering one of its most sluggish
years of growth in this decade, according to securities analysts and
some executives.
Indeed, lackluster financial results reported by companies such as 3Com
and Cabletron point to an industrywide slowdown affecting a number of
vendors, according to Craig Johnson, an analyst at Dataquest Inc.
"The overall market has slowed down," said Johnson. He said he expects
1998 to be a difficult year for all vendors because of adverse worldwide
economic conditions.
Eric Benhamou, 3Com's chairman, and Chris Paisley, 3Com's chief
financial officer, also painted a less than optimistic scenario for the
overall industry when they discussed the company's second-quarter
financial results Dec. 18.
In 1998, the rate of market growth should be 5 percent to 7 percent
higher than it was in 1997, the two executives said. But because the
second half of 1997 was so slow, that rate will be well below the growth
of the early '90s.
Paul Weinstein, a securities analyst at PaineWebber Inc., estimated the
growth rate of internetworking equipment sales in 1997 to be in the low
20 percent range. If Benhamou's and Paisley's predictions are correct,
Weinstein said, then 1998 should bring a growth rate in the higher 20
percent range for internetworking equipment sales.
That kind of forecast has made analysts optimistic, especially when they
look at companies like router and switch maker Cisco, which so far has
never failed to turn in solid financial results.
But even Cisco can feel the effects of investors who are jittery about
technology stocks. Cisco's shares dropped sharply in December after
reports about a $40 million increase in one part of the company's
inventory. Still, analysts said that amount is not significant for a $6
billion company.
"I am very bullish on Cisco," said analyst Chris Stix of Cowen & Co. He
cited Cisco's strong position in WAN switching and routing, as well as
the company's voice-over-data technology, its fast Ethernet switches and
its StrataCom ATM switches.
"There will be a lot of tariffing of T1 ATM services in 1998," said
Stix, who also expects Yurie Systems Inc. to hold its own in the market.
"Yurie will do well selling access ATM switches to the carriers" through
its partnership with Bay Networks.
Market researchers agree access ATM will be a hot technology in 1998. In
a recent study of the ATM market, Dataquest analyst George Hunt
estimated the ATM access concentrator arena will nearly double to $375
million in 1998, up from about $205 million in 1997. By 2001, the market
will grow to $1.28 billion, he projected.
The low-speed (less than 2-Mbps) concentrator market is expected to
climb to $221.2 million in 2001, from $32 million in 1997. High-speed
(greater than 2-Mbps) concentrator sales will grow 57.3 percent per year
to $1.1 billion in 2001, Hunt said.
Yurie held the No. 1 market position at the end of 1996, according to
the Dataquest study.
The backbone ATM switch market will grow to $4.7 million in 2001 from
$1.4 billion in 1997, Hunt said. Dataquest expects Cisco to introduce a
higher-end customer premise device based on its 3800 series and a
higher-end concentrator based on technology from Ardent Communications
Corp., which was acquired by Cisco in 1997.
Johnson said one of Cisco's strengths is its partnership with major
equipment manufacturers such as Alcatel and integrators such as
Hewlett-Packard.
A partnership with Tellabs Inc., specifically, would benefit Cisco,
Johnson said.
Tellabs is a leading supplier of digital cross-connect transmission
systems to carriers in the United States and of wireless access systems
around the world.
Steve Levy, an analyst at Salomon Brothers, said Tellabs has "the No. 1
position in the sweet spot of the transmission market. It has new
products that are generating real sales in the wireless local loop." |
