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Technology Stocks : Juniper Networks - JNPR -- Ignore unavailable to you. Want to Upgrade?

To: KellyW who wrote (2916)	1/8/2002 1:34:25 PM
From: GS_Wall Street	Respond to of 3350

Still a tough environment for any of the telecom/broadband suppliers. Even with Gibson JNPR will be hard pressed to match revenues from last year. MANHASSET, N.Y. — Capital spending by top telecommunications service providers in North America will slide a further 24 percent in 2002 from the depressed levels of 2001, and Sprint and Qwest will cut their purchases as much as 35 percent, according to a top analyst at Booz Allen Hamilton Inc. Other top service providers — AT&T, Bell South, SBC, Verizon and WorldCom — will spend at least 19 percent less on communications equipment this year versus last year. "2002 will be an ugly year again, especially in wired telecom," said Barry Jaruzelski, a managing partner of the global technology practice at Booz Allen (New York). "Even if these seven service providers are not entirely representative of the whole, it's not going to be a pretty picture." Several factors contribute to the continuing slowdown in telecom equipment spending. Upstart players in digital subscriber line (DSL) and cable data services have disappeared, lessening competitive pressures on the big incumbents. And the overall market slump is not encouraging new spending but rather is breeding an intense focus on lowering costs. "The industry as a whole is becoming much more driven by managing income and balance sheets," Jaruzelski said. "I think 2002 will be a pretty sober year. It will be a bit of a relentless grind." The focus on costs will be reflected in information technology spending, which some analysts estimate will grow by less than 5 percent this year. "That's probably the best case. Flat is probably more realistic," Jaruzelski said. Computer and consumer electronics manufacturers are doubly concerned about belt tightening because the average selling prices of their systems continue to slide. "Computer makers will be lucky to see revenues hold in 2002," Jaruzelski predicted. The price of hot-selling consumer electronics items like digital cameras and DVD players have fallen in recent years from $800 to as little as $100. "You have to sell eight times as many units to maintain the same revenue," Jaruzelski said. "And a computer maker would have to sell 12 to 14 handhelds to make up for the profit contribution it got from one PC just two years ago." Even hot markets like the one for data storage, where leaders such as EMC Corp. once garnered 70 percent gross margins, are coming under heavy competitive pressure from new entrants. System makers should continue their own cost-cutting efforts in 2002, Jaruzelski advised, whether by further industry consolidation, reducing costs through component integration or fine tuning supply-chain logistics. The exit of big-name players from major markets in 2001, including Toshiba leaving the PC business in the United States, Gateway departing that business outside the United States, Micron abandoning PCs altogether, and the pruning of product portfolios by telecom players such as Nortel's exit from the consumer DSL business, is expected to continue this year. In such a climate, "the big survive and the advantage goes to the most established players with revenues and positive cash flow," said Jaruzelski. He refused to comment on the proposed merger of Hewlett-Packard and Compaq, however, because Booz Allen advised the Dave and Lucille Packard Foundation on that issue before the foundation voted against the merger. Jaruzelski, who is distantly related to the former Polish general of the same name, pointed out two small bright spots on the road ahead. Spending on wireless infrastructure gear is expected to grow in the coming year as providers build out their 2.5 and 3G cellular services. And OEMs are expected to continue to try to eke out new services business, following the example of IBM Corp., which now makes as much as 37 percent of its revenues from services. "Most OEMs have been product bigots and have not seen services as a fundamental business in itself," Jaruzelski said. "People are still trying to figure out how to deal with this.">>>