ChangeWave Research: Telecom and Optical Networking – 2nd Half 2003
ChangeWave Research Report:
Telecom and Optical Networking – 2nd Half 2003
Abstract
This report summarizes two recent ChangeWave Alliance surveys on the outlook for the Telecom and Optical Networking sectors for the second half of 2003, along with the prospects for some leading companies.
1. First, our Alliance Corporate Sales survey (June 2003; n=946) showed little short-term relief for the stagnant Telecom equipment sector in the third quarter. However, other telecom areas are doing much better. In particular, we’re seeing Optical Networking – which ranked among the top sectors in the June survey – trending higher in comparison to other telecom areas.
2. As a follow-up, we surveyed Alliance Telecom and Optical Networking Industry members (July 2003) on the state of these two industries for the rest of 2003. A total of 99 Telecom and Optical Networking members participated. While we again found a divergence between the Telecom and Optical results, there are clear hopes for a rebound in the second half of 2003.
Surge in Optimism for Optical Networking Sector
· 36% of Optical Networking respondents in our June survey projected their company sales will come in "Above Plan" for 2nd Quarter 2003 – a 200% increase over the previous quarter and the most positive change in sentiment in more than two years.
· However, industry professionals still see Optical as a slow-growth sector, and a net -3% believe it will be a top performer in 2003.
· There is action in Metro/Local Area Optical gear – it leads the way in planned purchasing of new Optical equipment (53%) and is 2nd in need for new capacity (28%).
· Cisco is rated the Optical Networking company most likely to achieve rapid growth for the balance of 2003 (25%), followed by Nortel (14%) and JDS Uniphase (14%).
Traditional Telecom Still in the Doldrums – But There are Signs of Hope
· Only 16% of Telecom respondents in our June survey projected their company sales will come in "Above Plan" for 2nd Quarter 2003 – unchanged from the previous quarter.
· However, 51% see Telecom demand increasing in the second half of 2003 vs. only 4% who expect a decrease – a very positive sign.
· Wireless is number one area for growth; Data Networking/Transmission was second.
· Cisco is rated as most likely to improve its Telecom equipment performance this year; Nortel showed the most impressive gains over our previous survey results.
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Table of Contents
Summary of Key Findings 3
Introduction 3
A Closer Look at our 2Q/3Q Corporate Sales Survey (June 2003) 4
Telecom and Optical Networking industry Survey 6
Summary and Analysis 13
ChangeWave Research Methodology 15
About ChangeWave Research 16
I. Summary of Key Findings
Introduction
This report summarizes two recent ChangeWave Alliance surveys on the outlook for the Telecom and Optical Networking sectors for the second half of 2003, along with prospects for some of the leading companies.
1. Our most recent Corporate Sales survey (June 2003; n=946) shows little short-term relief for the stagnant Telecom equipment sector in the third quarter. However, other telecom areas are doing much better. In particular, we’re seeing optical networking – which ranked among the top sectors in the June survey – trending higher in comparison to other telecom areas.
2. In a follow-up, we surveyed Alliance Telecom and Optical Networking Industry members (July 2003) on the state of these two industries for the rest of 2003. A total of 99 Telecom and Optical Networking members participated, and while we again we find a divergence between the Telecom and Optical results, and there are clear hopes for a rebound in the second half of 2003. Overall, the survey focused on five areas:
· The demand for telecom equipment and the outlook for the rest of 2003
· Telecom equipment sub-segments and companies – winners and losers
· Capacity issues for telecom sub-segments
· Prospects for the Optical Networking sector and companies
· Verizon's fiber build-out to the home – is it for real?
First, let’s take a brief look at the Corporate Sales survey results:
(A) A Closer Look at our 2Q/3Q Corporate Sales Survey – June ‘03
Telecom Sector Findings
Still In the Doldrums – No Change in Number of Winners: The number of Telecom winners remained unchanged from our previous quarterly survey. Only sixteen percent (16%) of telecom respondents projected their company sales will come in "Above Plan" for 2nd Quarter 2003. But Fewer Losers: On a somewhat more positive note, the number of Telecom losers has decreased to 39% in the 2nd quarter from 48% in the previous quarter.
Alliance Telecom Sector Survey Results — 2nd Quarter 2003 Sales
Last 12 Alliance Quarterly Surveys Comparison – Telecom Sector Survey Results
January 2001 – June 2003 (Above Plan vs. Below Plan)
Optical Networking Sector Findings
Far More Winners: The number of Optical Networking winners increased significantly in the 2nd Quarter. Thirty six percent (36%) of optical networking respondents projected their company sales will come in "Above Plan" for 2nd Quarter 2003, which represents a 200% increase over the previous quarter's results. Far Fewer Losers: Sixteen percent (16%) of Optical industry members reported company sales will come in "Below Plan" for the 2nd Quarter, representing a 52% decrease in this negative indicator over last quarter's results.
Alliance Optical Networking Sector Survey Results — 2nd Quarter 2003 Sales
Alliance Optical Networking Sector Survey Results – Last Twelve Alliance Surveys Comparison (Above Plan vs. Below Plan), January 2001 – June 2003
The difference score (difference between the percentage of members "Above Plan" and those "Below Plan") is now +20 for the 2nd Quarter, compared to -21 for the previous quarter. This further points out the sharp improvement recorded in Optical Networking for the 2nd Quarter. Moreover, the 36% “Above Plan" results for the 2nd Quarter are the highest recorded for Optical since we began these surveys in January 2001; and the net difference between the "Above Plan" and "Below Plan" has moved into positive territory for the first time since January 2001.
In sum, while the Optical Networking findings show real improvement, Telecom is still hurting. No other sector did as poorly as Telecom in our June Quarterly survey.
(B) Telecom and Optical Networking Industry Survey
We also surveyed our Alliance Telecom and Optical Networking industry members (July 2003) on the state of these two industries for the rest of 2003. The survey focused on five key areas:
· The demand for telecom equipment and outlook for the rest of 2003
· Telecom equipment sub-segments and companies – winners and losers
· Capacity issues for telecom sub-segments
· Prospects for the optical networking sector and companies
· Verizon's fiber build-out to the home – is it for real?
I. The Demand for Telecom Equipment and Outlook for the Rest of 2003
(1) Question Asked: Based on your own knowledge and what you are seeing in the industry, do you believe that telecom equipment demand in the second half of 2003 will increase, decrease, or remain the same in comparison to the first half of 2003?
Current Survey July 2003 / Previous Survey December 2002*Demand will Increase in Second Half of 2003 / 51% / 39%
Demand will Decrease in Second Half of 2003 / 4% / 20%
Demand will Remain the Same in Second Half of 2003 / 38% / 38%
Don't Know / 7% / 4%
*Note: In the previous survey (December 2002), the question was “Based on your own knowledge and what you are seeing in the industry, do you believe that telecom equipment demand in 2003 will increase, decrease, or remain the same in comparison to 2002?”
Better Outlook for Telecom Equipment Signals Bottom. The margin of respondents who see demand increasing in the second half of 2003 versus those who expect a decrease was 51% to 4% (Net +47). In comparison, our previous survey (December 2002) showed a Net +19 of respondents who expected increased demand for all of 2003.
II. Telecom Equipment Sub-segments and Companies – Winners and Losers
(1) Question Asked: Which one or two of the following categories of telecom equipment will perform the best in the second half of 2003? (Please Choose No More Than Two)
Current Survey July 2003 / Previous Survey December 2002*Wireless / 68% / 76%
Data Transmission / 29% / 33%
Optical/Fiber / 27% / 13%
Metro / 17% / 21%
Billing/CRM Software / 6% / 8%
Traditional Wireline / 4% / 5%
Net Management Software / 1% / 16%
*Note: In the previous survey (December 2002), the question was “Which one or two of the following categories of telecom equipment will perform the BEST in 2003?”
(2) Question Asked: Which one or two of the following categories of telecom equipment will perform the worst in the second half of 2003? (Please Choose No More Than Two)
Current Survey July 2003 / Previous Survey December 2002*Traditional Wireline / 60% / 66%
Optical/Fiber / 30% / 47%
Billing/CRM Software / 18% / 15%
Net Management Software / 10% / 11%
Metro / 9% / 9%
Wireless / 3% / 4%
Data Transmission / 2% / 4%
*Note: In the previous survey (December 2002), the question was “Which one or two of the following categories of telecom equipment will perform the WORST in 2003?”
Net Difference Score – Current Survey
Telecom EquipmentSub-Category / Perform Best / Perform Worst / Net Difference Score
Wireless / 68% / 3% / +65
Data Transmission / 29% / 2% / +27
Metro / 17% / 9% / +8
Optical/Fiber / 27% / 30% / -3
Net Management Software / 1% / 10% / -9
Billing/CRM Software / 6% / 18% / -12
Traditional Wireline / 4% / 60% / -56
Wireless is Strongest Category, But Optical/Fiber Scores Sharpest Gains. More than two-thirds (68%) of respondents see Wireless as the best performer for the 2nd half of 2003. Moreover, Wireless scored a Net +65 when we asked respondents which segment would be the top performer (68%) and which would be the worst (3%).
When we compared our December 2002 survey results with the current survey, only one category showed meaningful improvement – Optical/Fiber soared from a Net -34 to a Net -3, an impressive gain of +31 percentage points.
(3) Question Asked: Within the market for telecom equipment, which one or two companies do you believe have the best chance of improving their performance in the second half of 2003? (Please Choose No More Than Two)
Current Survey July 2003 / Previous Survey December 2002*Cisco / 54% / 59%
Nortel / 32% / 15%
Nokia / 22% / 44%
Lucent / 15% / 5%
JDS Uniphase / 12% / 8%
Motorola / 11% / 18%
Ciena / 8% / 9%
Ericsson / 6% / 8%
*Note: In the previous survey (December 2002), the question was “Within the market for telecom equipment, which one or two companies do you believe have the BEST chance of improving their performance in 2003?”
(4) Question Asked: Within the market for telecom equipment, which one or two companies do you believe have the least chance of improving their performance in the second half of 2003? (Please Choose No More Than Two)
Current Survey July 2003 / Previous Survey December 2002*Lucent / 40% / 53%
Ericsson / 36% / 26%
JDS Uniphase / 25% / 26%
Nortel / 17% / 32%
Motorola / 17% / 10%
Ciena / 15% / 12%
Nokia / 6% / 3%
Cisco / 5% / 3%
*Note: In the previous survey (December 2002), the question was “Within the market for telecom equipment, which one or two companies do you believe have the LEAST chance of improving their performance in 2003?”
Net Difference Score – Current Survey (July 2003)
Telecom Equipment Companies / Best Chance of Improving Performance / Least Chance of Improving Performance / Net Difference ScoreCisco / 54% / 5% / +49
Nokia / 22% / 6% / +16
Nortel / 32% / 17% / +15
Motorola / 11% / 17% / -6
Ciena / 8% / 15% / -7
JDS Uniphase / 12% / 25% / -13
Lucent / 15% / 40% / -25
Ericsson / 6% / 36% / -30
Cisco is Clear Leader, Nortel Stages Solid Comeback. More than half (54%) of respondents believe Cisco is the company most likely to improve its Telecom equipment performance for the rest of this year, while only 5% see it as having the least chance of improving (Net +49).
Comparing the current survey with the previous survey results (Dec 2002), Nortel is by far rated the company most likely to improve its Telecom equipment performance. On the other hand, Nokia has lost the most ground in the Telecom equipment marketplace since our December survey.
(5) Question Asked: Within the market for telecom software, which company(s) do you believe has the best chance of improving their performance in the second half of 2003?
Nortel / 15%Lucent / 15%
Cisco / 12%
JDS Uniphase / 6%
Peoplesoft / 6%
Other / 60%
Telecom Software Market is Fragmented With No Clear Leadership. Nortel (15%) and Lucent (15%) are seen as the companies most likely to improve performance within the telecom software market for the balance of 2003, with Cisco following closely with 12%. Interestingly, 60% of respondents identified a range of smaller companies. As BIL9130 puts it, "Too tough to call - still a weak and fragmented market."
Sample of Alliance Member Responses: "Other" (60%)
· GIA7642 writes, "A company dealing with mobile internet that comes up with mobility related software and allies with the major GSM system vendors will most probably be the winner."
· CYB8048 writes, "Telecom Billing/CRM software companies."
· INT8286 writes, "3COM with its HW for small and medium sized enterprises."
· DOU7937 writes, "Nuance Communications - Speech Recognition."
· JFE5370 writes, "Soft switch companies."
· WOL6779 writes, "BEA Systems."