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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: ahhaha who wrote (4770)	7/11/2002 4:00:59 PM
From: deeno	Read Replies (1) \| Respond to of 24758

The reason Im going to ask the following questions is that im interested in your answers. Background that I hope will ultimately make me some money. "Growth rate of throughput minus telco capex to add capacity" I think this says current capacity + new capacity purchased is growing slower then growth of information flow. When I couple this with "at peak times do we stall? Yes. You only need to go to dslreports to get a flavor of this. It is getting progressively more annoying. ATT for instance, is not delivering what they promise." AND "What does "loaded" really mean? It means that on cable BB response times and ftp transfers are slower" It sounds as if your saying that we have already reached saturation and the future either will bring us higher rates (lowering usage) or more infrastructure capex buys to increase capacity. ATT sounds like leaning toward the former. IF this saturation supposition is so then what are you using as growth rates for increased traffic? last years extrapolation? current actual increases? BTW where do you get this info? im always impressed. Also are you speaking from a company personal, regional, Domestic or Global perspective? "The cable companies very soon will be introducing a primitive form of QoS. That means that rates will be rising based on use, but the basic rate should tend to hold in contrast to the existing upward pressure to raise the basic rate. The pressure comes from ever increasing use without ever increasing additions to capacity. It isn't profitable to add capacity unless QoS is available. In that case basic service would improve and remain at a constant price." I'm taking this out of context, but I want to make sure that the above comments about capacity are not just cable oriented. You were talking about ALL forms of traffic werent you. "These conversations though are informal cocktail talk. So im not questioning the truth of your statement as much as how you came to this conclusion. Rates aren't getting cheaper all the time in anything. Quite the opposite is occurring." There was a hidden comment here. You may not remember but years ago on the ATHM we had numerous discussions of Satelite potentital. I did some extensive research in the area, and although I would have LOVED to buy something there I never did (thank god). Certianly part of the reason were your compeling arguments of feasability. Thank you. About 5 years has passed though and things change. I still have many contacts in the space industry and I have found untold capacity in current bird schedule. Rates have plummeted im told. So the long winded question is with rapidly changing technology could any of this huge capacity be used to offload some signficant load that would make capex spending less acute then you have indicated?

To: ahhaha who wrote (4770)	7/11/2002 4:51:10 PM
From: deeno	Read Replies (1) \| Respond to of 24758

maybe this is a little what your talking about? not sayin hes right just happen to pick up David A. Jackson ? Does increasing network latency mean it's time to buy component stocks? Recently, multiple investors have asked us about the "latency argument." In this note, we argue the answer is "no" and explain our view that this argument is flawed on several levels. ? First, latency is not an indicator of increasing utilization of optical equipment SONET and DWDM gear are designed to deliver voice and data in slots of traffic, and there is generally no latency at this level of the network unlike the IP layer, we think. So increased latency may be a lead indicator of demand for IP routers, but not optical systems and components. ? Second, the linkage between rising traffic and carrier capex is unclear Over the past 12 months, carriers have redeployed systems and swapped line cards from under utilized to congested routes. While such substitution is unsustainable in the long-term, we think, it also can delay a capex recovery and create sales volatility in the near-term. ? Third, utilization fluctuates widely as carriers consolidate Since many carriers lease far more traffic than they fill with customers, when they enter bankruptcy, their customers migrate to alternative carriers and large amounts of bandwidth are freed up. Given our expectation of further consolidation in the services group, forecasting capacity utilization is likely to be a moving goal post. ? Fourth, and most importantly, spending today is driven by expected ROI In the post-bubble world, capex is driven by expected return on investment, not traffic growth or page views, we think. We believe carriers will spend more on networks not when latency rises, but when ROI in data networks improves. ? We have a Cautious view on Wireline Networking Challenging fundamentals, including weak demand, lower carrier capex and soft enterprise spending, could led to another leg down in 2H02-2003.

To: ahhaha who wrote (4770)	7/11/2002 4:55:36 PM
From: deeno	Read Replies (2) \| Respond to of 24758

a little bit more in depth to sink your teeth into Wireline Networking Equipment - July 11, 2002 Page 2 Please see the important disclosures at the end of this report. The Latency Fallacy Summary and Investment Conclusion In recent days we?ve received numerous calls from investors wondering whether it is time to buy the optical stocks, particularly the optical component stocks. Their argument is not about valuation (that?s a different story), but about recovery in demand. Here?s how it goes: Data traffic continues to grow at 60-110% per year, but carriers have dramatically reduced investment in their networks over the past year. Many carriers are now experiencing increased latency - constant delays in transmission - on their networks. To maintain quality of service, these carriers will be forced to re-invest in their networks. The resulting increase in spending will benefit the optical systems vendors (Alcatel, Ciena, Lucent, and Nortel) but even more so the optical component vendors (Agere, Corning and JDS Uniphase) who are most leveraged to a recovery in demand. So now is the time to buy the optical component stocks! We strongly disagree with this view; our industry view on telecommunications equipment is Cautious, and not without reason. The ?Latency Argument?, we think, is flawed on multiple levels. Here are the problems we see with it: First, we don?t think network latency is an indicator of rising capacity utilization for optical equipment. Optical ?transport? equipment in most networks - SONET and dense wave division multiplexing (DWDM) gear - is designed to guarantee delivery of voice and data by delivering slots of traffic in strict rotation. There is generally no latency at this level of the network. SONET gear, for example, does not include the kind of buffering seen in IP routers. Instead, latency is a phenomenon at the IP layer. So increased network latency may be a lead indicator of demand for IP routers, but certainly not for SONET and DWDM equipment and optical components. In fact, many carriers tell us they still have a glut of optical transport capacity on their networks. Second, even if latency on some routers is rising, the linkage between rising traffic and carrier spending is unclear. Over the last 12 months, we?ve seen carriers redeploy equipment and line cards from routes with excess capacity to routes in need of added capacity. True, that substitution can?t last forever. But it can delay a rebound in spending and play havoc with short term revenue projections. Third, capacity utilization fluctuates dramatically as carriers consolidate. Wholesale carriers have told us that their estimates of network capacity utilization plummeted when their carrier customers stopped leasing bandwidth, either due to bankruptcy or an attempt to bring traffic ?on net?. Many carriers lease far more capacity than they fill with their own customer traffic, so when they go under and their customers migrate to other networks, the net effect is to free up large amounts of bandwidth in the network. We believe that there is further consolidation to come in the carrier group; if that is true, capacity utilization could be a moving goal post. These three arguments make us skeptical of the linkage between latency and demand for optical gear. But our greatest concern with the latency argument is more fundamental. In the post-bubble world, corporate investment is no longer driven by traffic growth, page views, minutes of use or number of subscribers. We believe spending is driven by one metric only: expected return on investment. We believe that one of the implications of the alleged Worldcom fraud is that by mis-classifying operating expenses as capital expenses, Worldcom overstated the profitability of its enterprise data and internet backbone businesses. Return on investment was even poorer than originally thought. Carriers will likely spend more on their networks not when latency rises, but when return on investment in data networks rises. For this reason, the Morgan Stanley Telecom Equipment team forecasts aggregate revenues for our stocks based on capital spending forecasts (driven by financial metrics) from our service provider analysts. Those spending estimates continue to fall as carrier profitability is squeezed by excess competition, a weak economy, and deteriorating carrier credit ratings. This is particularly true for the largest North American interexchange carriers (AT&T, Qwest, Sprint, and Worldcom), which dominate spending on (yes, you guessed right) optical transport gear and by extension optical components. Investors have learned the hard way that the ?Latency Argument? is a fallacy. In April 2001, Nortel CEO John Roth predicted that spending on optical gear would imminently recover as major North American carriers reached maximum capacity utilization on their networks. It?s now 15 months later, and we?re still waiting for the recovery?