Now It's the Turtle's Turn

The news of the day for service providers seems all bad: disappointing results, layoffs, bankruptcies.

But behind the scenes of the Giant Skid, there is much more good news to report than you might think. The chief reason not be too gloomy is that demand for bandwidth has not abated, so the underlying long-term prospects for network service providers continue to be strong.

"The inevitability of us moving to an increasingly network-centric world is one of the immutable facts of our lives," says Peter Bernstein, president of Infonautics Consulting and a long-time industry observer. "The underlying demand for services and for bandwidth will absolutely be there and will grow."

There is a feeling within the industry that the pell-mell pace of the past two years was not all positive and that a slowdown is, conversely, not all negative.

"Maybe now you don't feel you've got to run like hell just to get the next product out as quickly as possible," says Jeff Gwynne, founder and chief marketing officer at Quantum Bridge, which makes equipment for metropolitan optical networks. "You have more time to build up your software and professional services."

Equipment vendors have been working at an incredible pace to keep up with demand for products when service providers were building out their networks at a similar pace. For suppliers, the slowdown is a major opportunity to improve their manufacturing processes and drive down costs.

"During the hype period, we were inundated by companies just saying 'Help me ramp up, help me ramp up,' " says Werner Huetteman, VP and general manager for the communications network solutions group of Agilent Technologies, which provides test gear for manufacturers and service providers. "They weren't concerned with costs or processes. Just two months later, they are coming back to ask for help with their throughput and with getting their test costs down."

The major effort will be on automating the manufacturing process to be ready for the next major ramp-up, says Jesko von Windheim, VP and general manager at Cronos, the optical switching arm of JDS Uniphase. "That's not something we had time to do during a busy period," he says.

For some suppliers, a slowdown presents a chance to catch up to a backlog of deliveries. Tektronix, a maker of testing gear, faced a 12- to 18-week backlog in meeting orders and therefore recording revenues for its optical test gear. "We now have a chance to catch up," says P.J. Kleffner, business development manager for the Americas.

Finally, there is a sense that sanity has returned. "The silliness is gone," says Greg Mumford, president of optical Internet for Nortel Networks. "That's better for everyone.

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in The Net Economy.