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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Proud_Infidel who wrote (49080)	7/11/2001 3:10:45 PM
From: Proud_Infidel	Read Replies (1) \| Respond to of 70976

Opto equipment struggles seen extending into 2003 By Craig Matsumoto EE Times (07/11/01 10:53 a.m. EST) BALTIMORE — Vendors of optical-networking equipment may find the current market slump lasting until 2003, according to experts at this week's National Fiber Optic Engineers Conference. At a panel on the networking financial food chain, a venture capitalist and a financial analyst predicted that this year's downturn would be followed by a flat 2002. On the venture side, VC fund raising is expected to sink to $35 billion this year from $70 billion in 2000, and could fall another 30 to 40 percent in 2002, said Steven Krausz, general partner with U.S. Venture Partners. "There's just too much overcapacity, too much inventory and too much debt wreckage," Krausz said. Meanwhile, analyst Michael Ching of Merrill Lynch said carrier spending remains too high, exceeding the historical 15 percent of revenue, even with recent cutbacks. Purchases will have to fall off for another year before they drop low enough to justify any spending increases, he said. Merger and acquisition activity will likewise stay dormant, said Bob Eatoff, principal of Morgan Stanley Dean Witter & Co. The past two years saw a "land grab" as companies chased what they thought was an infinitely growing communications market. But companies today have to concentrate more on profitability and cash flow, he said. "When you make a bet that the market is huge and the valuation turns out to be lower, the pendulum has to swing the other way," Eatoff said. The unsustainable rate of carrier spending led to overcapacity, Ching said. In a now-famous study, Merrill Lynch found that during average network loads, only 3 percent of the fiber-optic cabling in the United States is being used. Though conference keynoters challenged that figure, Ching defended the study, adding that if usage grows to 6 percent this year, as expected, that still leaves overcapacity to be absorbed. Ching expects usage to approach 15 percent around 2003, around the same time he sees carrier purchasing falling to acceptable levels. "You need these two things happening at the same time before you see carriers start to accelerate spending," he said. Speaking in a separate session on optical networking, partner Peter Wagner of venture firm Accel Partners noted that the harsh environment is likely to favor incumbent players, on both carrier and equipment sides. Startups will continue to fall off the map, and some incumbents may be poised to exploit this environment, he said. "We even have a bunch of [carriers] who are hoarding cash, choosing not to build new networks, waiting around to buy those emerging carriers," Wagner said, citing Cable & Wireless as one carrier that may be using this strategy. Instead of mergers, Wagner said he expects to see "more non-M&A partnerships . . . as people try to assemble a winning hand out of the pair of twos they have."