May 11, 2001, 4:42 PM — LAS VEGAS -- Despite reduced capital spending from their customers, metropolitan optical Ethernet companies exhibiting at this week's NetWorld+Interop 2001 show say they will not stray from their original business plans in an effort to create or stimulate demand for their products.
The companies say their initial business objective -- making and selling equipment that lets service providers deliver Ethernet services to companies -- is still compelling enough to investors and customers that they can generate enough capital and revenue to ride out the current economic slump. The consensus among metropolitan Ethernet vendors is that companies targeting long-haul networks will suffer most from the industry downturn.
Some have been hit harder than others. Astral Point has had to lay off 20% of its staff and halt development of one of its two product lines to conserve venture funding.
And ADVA Optical Networking has had to lower its revenue guidance for 2001 by about 10%, which is still nearly double the $60.6 million realized in 2000.
"There was a lot of money spent in 2000 on scaling for future capabilities," says Brian McCann, ADVA's chief sales and marketing officer. "Now that's only going to be done out of necessity."
"The rules of the game have changed," adds Agnes Imregh, vice president of marketing at LuxN.
Vendors are hopeful the industry will start to turn around in the fourth quarter of this year, or the first half of 2002. Some reputable and influential Wall Street firms, however, say the industry is just closing the first year of what could be a three-year slump (See story).
McCann admits that visibility is murky.
"No one really knows when this will be over," he says. "It's going to take cash to get through this storm because what's been projected in sales is already softer. Real companies with real products to deliver are the ones that are going to survive."
"Real" is not in the vocabulary of some analysts when they consider the business case for Ethernet metropolitan-area network services. They say these companies haven't seen the worst of it yet.
"I don't see any way the telecom industry in the U.S. is going to evolve in such a way that the result is going to be a large-scale purchase of Ethernet," says Tom Nolle, president of consultancy CIMI Corp. in Voorhees, NJ. "I give Ethernet six months before the whole thing is gone. You can't map [time-division multiplexing] infrastructures to Ethernet. You can't sell leased lines over Ethernet. This just is not going to work. ATM is going to dominate."
Undaunted, vendors press on.