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A Brighter Dawn on Infrastructure's Horizon

With the events of Sept. 11 still quite visible in the U.S.'s rearview mirror, analysts, economists and other financial wizards have weighed in on what kind of effect the tragedy may have on the state of high-tech in the U.S.

Goldman Sachs was one of those firms. On Tuesday, the research arm of the esteemed investment firm cited four prime examples of how high-tech infrastructure companies -- Akamai Technologies Inc., Metromedia Fiber Networks, StorageNetworks and WebEx Communications Inc. specifically -- will be affected in the short-term as the economy depresses further. Down the road, analysts Matthew J. Janiga and Gil Dibner said the same firms and their competitors and brethren could see a silver lining in the clouds as more backup, recovery and security services are engaged.

Over the short-term, Akamai was hurt immediately last week when it lost co-founder and Chief Technology Officer Daniel Lewin, and GS said the business disruption could lead to a reluctance by customers to embrace the firm's EdgeSuite service. EdgeSuite, Akamai's flagship service, allows the assembly, presentation and delivery of an enterprise's data and applications via Akamai's network.

Interestingly, Cambridge, Mass.'s Akamai scored a serviceable reseller deal for EdgeSuite with newly-acquired Compaq Computer Corp. on Sept. 11. GS said one reason for why the EdgeSuite could persevere was that it allows "businesses to scale their operations without costly centralized data center architectures, which can be affected and taxed by catastrophic incidents."

White Plains, N.Y.-based Metromedia, an optical IP Net infrastructure company seemingly hanging on by a thread until its funding can be determined, should see a value increase for its assets, GS said. GS based its opinion on the notion that redundancy services, and the paucity of redundant fiber networks in cities, may boost demand.

Waltham, Mass.'s StorageNetworks, according to GS, will hurt from "the exposure of Merrill Lynch to Tuesday's events." GS said storage growth for major accounts such as ML will slow until the firms recuperate from the tragedy. Again, though, long-term prognosis may be good for the storage sector as data backup, specifically hot sites -- commercial disaster recovery services that allows a business to continue computer and network operations in the event of a computer or equipment disaster -- will be a must have for many firms going forward.

Lastly, GS talked about San Jose, Calif.'s WebEx, a provider of interactive communications infrastructure for business meetings on the Web. Clearly, with the widespread fear of commercial airlines due to security concerns following last week's events, WebEx is one that could benefit immediately.

Phil Leigh, vice president of equity research at Raymond James & Associates agreed, telling On24 that the tragic event could catalyze PC-to-PC, real-time collaboration.

"In the WebEx process, the communication is directly from my desktop PC to your desktop PC... wherever you are on the Internet." Leigh said. "It's not just between you and me -- it can be groups of us. It's not just video, it's complete interaction of all software applications on anyone's PC."

Indeed, WebEx is just one of a slew of firms who can enable business meetings to be conducted via the Web. When U.S. stock markets reopened Monday, proprietors and sellers of conferencing systems, namely Polycom, ACT Teleconferencing and Wire One Technologies posted gains this week while airline and online travel companies' stocks plummeted.

"Specifically, as we expect domestic and international air travel to become increasingly restricted, inconvenient, and expensive, we believe the relative benefits of conferencing and web-collaboration will become incrementally more attractive to enterprise customers," GS said. "However, we remain cautious given the current valuation and the threat of increased competition over the intermediate to long term.

And while GS said it sees short-term business picking up a bit for some infrastructure providers, they will also go the way of the overall economy, saying last week's events have made a challenging economy even more difficult.

"These events have introduced added uncertainty, fear, and disruption into the market which will make it more difficult to close business," GS concluded.

As for a long-term prognosis, things look good for infrastructure, GS said.

"However, over the longer term, we believe Tuesday's terrible events may actually strengthen the Internet infrastructure services industry as enterprise customers seek to ensure business continuity and security," the research note said.

What, then, is the conclusion? The kernel of GS' thinking is that unless you are a firm that can, say, help people obviate the need to fly, infrastructure providers, on the coattails of the high-tech sector, will suffer a bit more before they get stronger.