Network Vendors Aim High

A multi-billion-dollar contract to upgrade communications technology across
Air Force installations should benefit several network equipment vendors,
analysts said today.

The branch has earmarked up to $9 billion over five years for IT and
communications hardware, software and services under its Network Centric Solutions (NETCENTS) program.

The Air Force’s over-arching requirements are interoperability and security,
according to the Department of Defense. Work on the project will be
completed by 2009.

SG Cowen & Co. didn’t specify the exact value of the networking gear orders, but in a research
note this morning, analysts said, “One equipment vendor we
spoke with estimated the total opportunity for networking equipment could
potentially be between $300 million and $500 million.”

Air Force officials at each base will have a say in which data networking gear they choose
and from which vendor. This could give Cisco an edge since it’s done a lot of
business with the Air Force, analysts said. Foundry Networks
has also recently landed Air Force contracts.

It’s routine for federal agencies to tap multiple vendors for major
projects. The strategy limits the damage if a particular system goes
down and keeps pricing competitive.

On the voice side, the Air Force has said it wants to standardize on Nortel
, Avaya , Lucent , Cisco or
Siemens , SG Cowen said. Lucent is part of a team put
together by Lockheed Martin, a main contractor chosen for NETCENTS.

Still, there should be plenty to go around.

“We believe Cisco, Foundry,
Extreme and Enterasys all stand to benefit, although Cisco’s entrenched
position within the Air Force will likely earn it the greatest share of
equipment spending under the contract,” SG Cowen said.

In other sector news, it will take longer for Nortel to recover from the
one-two combination of the telecom downturn and an accounting scandal that plagued its.
The company said third-quarter revenue will be lower than last quarter’s
$2.6 billion. And for the full year, the company expects its growth will be
in the mid-single digits, slower than the industry average.

Nortel recently delayed
issuing revised accounting statements because of the scope and complexity of
the task. Several civil suits and criminal investigations that grew out of
the accounting debacle also dog the company.

Despite the setbacks, CEO Bill Owens said in a statement that settling
accounting questions and revamping company strategy will position it for
growth in 2005. Investors weren’t as sanguine, pushing shares down 23 cents,
or 6 percent, to $3.57, in heavy morning trading.

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