The good news for 2003, networking industry investors and analysts agree, is that Internet router makers
The bad news is that their many competitors will once again be left behind, possibly damagingly so. Perhaps worst of all, investors shouldn't hold their breath for any bailout mergers at big money-losing gear shops.
So say the respondents to this year's informal poll of tech watchers.
surveyed a handpicked group of industry observers on whether the top network equipment suppliers would do better, the same or worse next year. The results drew an unforgivingly sharp line across the industry, with data outfits on the winning side and conventional telecom equipment makers and optical gearmakers on the other.
More good news at Cisco
comes as no surprise, and Juniper has long been seen as a strong runner-up in this highly competitive business. What was unexpected was that the handicappers came up with a long list of clear losers in the once-hot optical networking arena, including
While the divide has a technological angle -- with the Internet protocol gearmakers Cisco and Juniper on top -- the reasoning actually ran more along market categories. Our trendspotters picked corporate spending to be the first segment to pick up. Hence Cisco's and to a lesser degree Juniper's favorable prospects.
With phone companies hoarding cash as their businesses slide, the demand for new telecom gear is likely to fall further before it starts to pick up again.
But while Cisco stands to reap the most benefit from a Net gear upgrade cycle, skeptics point out that the data king already dominates the market -- leaving it little room to grow and plenty of opportunity for low-cost challengers to chip away.
"The pool's not getting larger and this fish is getting pretty big," said one analyst.
After corporate wallets start to open, industry watchers expect phone companies will begin to press some of their shelved projects back into action. The bulk of the work, like local fiber network upgrades and new phone switching systems, is likely to fall to the big telecom gear suppliers
, most said.
"These three should be a bit better simply because it can't get much worse," said a money manager.
"I think we bottom around the middle of the year," says another Wall Street analyst. "And the managements of these companies finally get the notion that they need to retreat to a few product lines so that they can differentiate themselves."
Each survey participant was offered anonymity in exchange for unguarded candor.
Last on the recovery line: optics. While it's not a shocker to see the critics nearly unanimous in their bleak outlook for optical component-maker JDS Uniphase, onetime favorite Ciena came in with the second-worst score.
"They are bleeding cash, and the management is not bringing its cost structure down fast enough," said a New York-based analyst. "Their customer base is sub-par and in financial trouble and certainly not spending on long-haul optical. This is not a good combination."
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How accurate is the poll?
Well, four of the companies
picked to do worse in 2002 --
-- didn't disappoint. Each outfit, at least from a stock performance standpoint, saw declines.
But given the type of year it's been in tech investing, it's little surprise that Juniper, the lone winner in last year's popularity contest, also saw a 50% drop in the market.
On consolidation, sentiment in the previous poll did not point to any major mergers, but most predicted Ciena,
would be acquired. In a curiously prescient move, Ciena bought ONI.
Though sentiment on big mergers remains negative for 2003, all eyes will still be on Cisco, and the $20 billion cash pile that's burning a hole in its pocket.
Among the logical, though admittedly remote moves that Cisco could make is to buy
North American optical operations. Analysts say it would be the easiest ticket to the Baby Bell ball. Fujitsu has a roster of big telco customers for its metro optical networking gear, which would bolster Cisco's one-product offering in that field, say observers.
But 2003 won't likely be the year of the high-quality deals, given Cisco's reticence and the continued degradation of all the players.
Says one wag: "If there is a deal, it will probably be along the lines of two drunks, leaning on each other to stay upright."
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