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.
