I think this article goes a long ways in
explaining today's action....
COMS needs to figure our how to make 56K modems
popular....I can't believe somebody wouldn't
want to upgrade for the price of a modem...even
if one only uses the modem for a year until
some kind of relief comes (xDSL or Cable), it's
still worth it.
Slow sales hit modems
By Jim Davis
Staff Writer, CNET NEWS.COM
July 1, 1998, 5:00 a.m. PT
news.com
----------------------------------------------------------
Modem makers and component
suppliers aren't expected to see financial relief
anytime soon, as prices on the newest 56-kbps
modems continue to plummet amid
unexpectedly tepid demand.
Modem manufacturers such as 3Com,
Diamond Multimedia, and Hayes had hoped
that the February adoption of an international
modem standard, called V.90, would spur users
to buy higher-priced, higher-margin 56-kbps
products based on the new standard, thus
remedying their bottom lines.
But analysts say the migration to new products
isn't occurring as fast as expected because the
majority of Internet service providers have not
completed their system upgrades or have
relatively few high-speed lines available,
causing many users to hold off on purchases. A
56-kbps modem offers roughly twice the
connection speed of the older 28-kbps
modems, found on the bulk of PCs now in use.
An outbreak of fierce
price competition could
also put a squeeze on
revenues at these large
modem makers. Prices
are already dropping
fast on pre-standard
(non-V.90) modems.
Now, even the newer
V.90 modems have seen
price drops of $20 or
more in the last month,
reports Eric Kitchens,
communications analyst
with Associated
Research Services.
For example, some
vendors are offering an
external V.90
fax/modem from
3Com's U.S. Robotics
for $129, down from
around $159 last month.
An external modem from Boca Research is
available for as little as $90. Internal modems,
which don't have a plastic case, are available
for even less.
As a result, modem component makers are
suffering too. Chipmaker Rockwell
Semiconductor has been hardest hit by the
ongoing troubles. The company is the largest
supplier of chipsets to modem makers, with
fully 50 percent of revenues coming from this
market, according to estimates from Forward
Concepts.
In part due to continued weakness in the
market, Rockwell International said yesterday
that the unit will be spun off as a separate
company in hopes of gaining tax benefits and
other efficiencies.
"There has been a huge price erosion in V.90
chips. They started at about $55 each in late
'96, were priced at $35 by the end of 1997, and
are now in the low $20s. That's a tremendous
drop, and it clearly means profit is down" for
modem chip makers, said Will Strauss,
president of Forward Concepts. Texas
Instruments and Lucent are the two other large
modem chip vendors, but haven't been as
affected by price drops because of their more
diversified product lines.
The downturn for dial-up modems may last
until after September, since there is a small
chance of an update to the V.90 standard by
then. This means customers would have to
update their modems to the current V.90
standard and again to any revised standard,
something ISPs are loathe to force people to
do.
"It's a difficult situation, but we've been in the
business long enough to know that remaining
conservative in adopting new consumer
technologies is always a wise move. We still
have people dialing in at 14.4 [kbps] in some
instances, so not everyone's eager," said Drew
Saur, vice president of technology at
Spectra.Net Communications, a New
York-based ISP and Web design firm that
hosts corporate sites.
In light of these developments, chip and
modem makers alike are looking to newer
technologies such as cable modems and digital
subscriber line modems to boost profits.
Rockwell, for instance, is developing chips for
DSL "Lite" modems, which would be easier to
connect than current DSL modems and offer
connection speeds many times that of even the
fastest dial-up modems on the market today.
Companies such as 3Com and Hayes have said
they intend to offer DSL modems, while PC
makers such as Dell Computer intend to offer
the modems in a select number of systems by
the end of the year.
"The real salvation is when the DSL Lite chips
ship late this year or early next year. The only
problem is that there won't be offsetting
revenues [from dial-up modem sales] from
these markets for almost a year," Strauss
thinks. The market for DSL chipsets will
initially be small, due to the fact that DSL Lite
service will be available in limited geographic
areas.
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