IP convergence

Nortel passes; competitors should heed warning

Now that it’s pretty clear that Nortel is gone, the inevitable “what went wrongs” are multiplying. We’ve heard they didn’t innovate, now we hear that they weren’t supposed to. In truth, you can never game the outcome of changes in behavior that it’s too late to make.

Any company, to be successful, has to make its customers successful. There are a lot of paths toward doing that; some rely on innovation and others on integration or being a cost leader. Any company can pick one, but that’s the rub. You can’t pick none, or pick them all. Nortel never had a strategy, it only had a set of tactics to address this or that silo. At a time when “convergence” is the byword of the market Nortel didn’t see its market as being converged, as having a single set of needs and as driven by a single set of conditions. It was, and so they missed the boat.

Cisco or Alcatel-Lucent, both cited by some as examples of what should have happened at Nortel, aren’t out of the woods yet either. The world of carrier and enterprise networking changed forever in 2008/2009 and the remaining players have yet to be tested against the new conditions. Good things, and bad things, are still to come.

Network spending forecasts: Where’s the logic?

UBS and other Wall Street research firms are issuing fairly dire forecasts on tech and network spending in 2009. UBS has tech spending dropping a “minimum” of 6-11% in the year, and the consensus for networking (including the service provider space) is a decline of about 10%.

At the same time, the firms are talking about a mid-year recovery in GDP and saying that tech will lead by a quarter, which would mean this is all happening in one quarter of bad news! Wireless spending is expected to be off by 7%.

Frankly none of this makes sense.

• First, there are no credible indications from our Tier One surveys that any provider has actually planned to cut spending in 2009. What has happened is that they have decided to slow-roll projects through the end of Q1 to try to get more visibility on the impact of the economic crisis on their monetization.
• Second, there is very little chance that the spending would dip by 10% even if there were to be a protracted recovery period because operators generally spend in proportion to revenue, and nobody expects carrier revenue to decline at that rate.
• Third, we believe providers would be happy to increase capex in 2009 if they could get a handle on monetization, and it is in the mobile area where they have the best chance.

In the enterprise, we believe there may be more persistent and systemic problems, but again we doubt a dip of 10% would be likely under any set of conditions that have a reasonable probability.