RealTime IT News

Report to Manufacturers: Focus or Fail

Telecommunication equipment vendors that want to succeed in tomorrow's market need to get out of the "one-stop-shop" mentality today or face certain failure, according to a new report by Gartner Dataquest.

The report's author, Bhawani Shankar, a principal analyst in the company's worldwide telecommunications and networking group, said top manufacturers like Nortel Networks Corp. , Lucent Technologies Inc. and Cisco Systems Inc. have begun the process.

"Large diversified vendors will transform into suppliers with significantly narrower focus, and there will be a lot to differentiate the enterprise vendors from the carrier vendors," Shankar said. "(That's) a marked departure from the verticalized business models that most vendors were trying to adopt until recently."

Cisco, one of the largest telecom equipment makers in the world, has already started refocusing its energies on what it sees are more profitable ventures down the road.

Last week at Comdex in Las Vegas, the company announced expanded security and services for its wireless local area network (LAN) product line. The company said it will utilize the 802.1x wireless security standard in its Wi-Fi product line.

However, what wasn't mentioned was the decision by its managers to get out of the fixed wireless market, the sector that provides a "last mile" connectivity solution for carriers in competition with digital subscriber line (DSL) and cable Internet service.

Its WT-2710 and WT-2750 high-end fixed wireless routers, used by carriers and Internet service providers (ISPs), will be discontinued on Feb. 12, 2002, according to a missive that went out to Cisco sales representatives Nov. 5. Current customers will be asked to migrate their equipment to a different company.

The move, while painful for current customers, is necessary, according to the report. Two years ago, when equipment maker executives could hardly keep up with the money they were making on the stock market and in vendor financing, becoming a "jack-of-all-trades" made sense.

However, in today's environment that's a strategy that many are finding untenable. Like a rubber band, Internet equipment companies that expanded in the late 1990s are quickly snapping back on their resources.

Carriers like Covad Communications, Rhythms NetConnections and NorthPoint Communications all needed networking equipment to compete for DSL service with the incumbent telephone companies. The Baby Bells were in the middle of a major move into the wireless digital phone industry, paving the way for 3G telephones.

Manufacturers rushed in to fill the void of supplying quality equipment, building facilities and hiring new employees to meet the demand. But once those companies started going out of business (as in the case of NorthPoint and Rhythms) or slowing down their broadband deployment (SBC Communications ), companies like Cisco and Nortel suddenly found they had a glut of equipment waiting to get sold.

Suddenly, carriers couldn't make their equipment payments, forcing equipment makers to take a loss.

Nortel, the Canada-based manufacturing giant, has been busily shoring its assets the past year in a desperate attempt to regain the profitability that once made it famous. In October, Nortel board members fired their chief executive officer, laid off 20,000 workers and posted a $3.5 billion loss in the third quarter of 2001.

No one company has taken a harder hit in the telecom meltdown than Lucent, which posted its own third quarter loss of almost $9 billion. The company, once the most popular equipment maker in the U.S. and current object of government scrutiny for its accounting practices, has announced massive layoffs and cost-cutting improvements in its efforts to regain equilibrium.

Ray Zardetto, Lucent spokesperson, said Lucent has already been taking the steps Gartner Dataquest said are necessary and that Gartner analysts view the company in a more favorable light because of those changes.

"They wrote this report in early November, right as we had a meeting with a number of industry analysts," he said. "We laid out the strategy we have and how more tightly focused we are in just the top 30 service providers in the industry and how we are going to make those customers of ours deal with their network complexities in a more cost-effective manner.

In his report Shankar predicts these companies will continue to be among the top five equipment manufacturers down the road, even though they will be "markedly" different in nature. Companies that succeed in tomorrow's market, he said, will also likely have a large presence in foreign markets.