      |
|
|
By
Julie Bort Our annual forecast for the year shows resiliency among the infrastructure, enterprise applications and service provider segments, although some markets will revive faster than others. For infrastructure vendors, success is a double-edged sword. With affordable 10/100 Ethernet the enterprise mainstay, Gigabit Ethernet is not much in play. As a percentage of the total market and ports, Gigabit Ethernet has been flat, reports Seamus Crehan, senior analyst for Dell'Oro Group. Enterprise users also had their fill of new technologies such as VPNs during the Internet boom. Integration and incremental efficiencies, not new devices, are what they want now. "Through 2000, we had a series of continuous seamless upgrades that made it look like one big upgrade cycle," Crehan says. "We have absolutely no compelling new technology to break through that cycle."
In 2001, that resulted in a 66% revenue fall-off for NW200 infrastructure companies. And 75% lost money. Wiring closet vendors, such as 3Com, Avaya, Cabletron (Enterasys Networks) and Nortel, were hit particularly hard. Extreme Networks drove revenue up 87%, yet lost nearly $69 million. 
Revenue for the market's foundation, Ethernet switches, will be nearly flat, inching to $11.4 billion in 2002 from the $11.3 billion posted in 2001. That's a 10% decline over 2000, according to Dell'Oro. Worldwide revenue for other hardware — servers, workstations and RAID storage — will decline by at least 9% this year to a high of no more than $20 billion, Gartner says. Still, Gigabit Ethernet, especially the new gigabit-over-copper products, will sell eventually. IDC estimates gigabit-over-copper ports to reach about 10 million in 2002 and 55.6 million in 2004. Also on the uptick will be enterprise investment in Web switches,
caching devices and other hardware for content delivery networks
(CDN). IDC expects companies to spend $960.2 million in 2002 building
CDN as a core network service. By 2005, they will spend almost $3.6
billion, it says. The growing use of streaming media for e-learning and video meetings will drive CDN, says Lawrence Orans, senior analyst for Gartner. "In five years, video to the desktop will happen. Video over IP will happen more quickly than voice over IP," he predicts. Outlook: Enterprise applications Enterprise software vendors on the NW200 increased revenue by 5% in fiscal 2001, or $76.8 million, but still lost $64.6 million. Yet these tough times are only a speed bump. Market watchers expect demand to grow steadily for mission-critical enterprise applications over the next five years and beyond. But, software once called the next big thing, such as customer relationship management (CRM), may not blossom as predicted. This year, vendors of business planning, financial, human resources and other core business applications will enjoy an 8.1% increase in license and services revenue over the $77.1 billion earned in 2001 worldwide. They can expect to grow 10.9% compounded annually from 2001 to 2006, says Dennis Byron, a vice president at IDC. 
But e-business vendors won't grow as much, says Tom Topolinski, a vice president at Gartner. The supply chain management software market will expand a modest 6% in 2002. The enterprise resource planning sector will see revenue dip 10% in 2002. And the CRM software market, now known to have high project failure rates, has vastly reduced growth projections. By early 2001, Gartner dropped its revenue growth estimates from 80% to 42%. Now the best prediction for 2002, by AMR Research, is 21%, with Gartner asserting revenue will stay flat, at about $3.7 billion in 2002. "Spending is going to be under totally different expectations and a lot more scrutiny than it was in 1997-2000. During what we call the ‘hype cycle,' people were buying CRM software without [development] models. Then they said, ‘We already spent all this money, and what do we have to show for it?' " Topolinski says. After 2002, IDC's Byron expects collaboration to be next big thing, both as independent tools and add-on features. He also says that access to third-party content within applications will become an upgrade driver, such as linking to a state tax law database from a payroll application. Stalwart software vendors ended 2001 well compared with icons in other industries (such as infrastructure) because companies budgeted software maintenance money in relatively rich 2000 for 2001, Byron says. Microsoft and Oracle boosted income, although each posted less profit than in fiscal 2000. PeopleSoft drove revenue up 19% to $2.1 billion and profit up 32% to $192 million. No so for e-business vendors. Broadview's revenue shrank 40%, and it lost $833 million. I2 Technologies lost $7.8 billion, dropping revenue 12%, and Commerce One lost almost $2.6 billion, despite a 2% rise in revenue. Despite the current mayhem, the two-year outlook for voice and data service providers is rosy. Managed application, network and storage services hit $193 billion in revenue in 2001, IDC reports. While many application service providers have tanked, the category as a whole will grow at a healthy 23% worldwide from 2001 to 2006, predicts Laurie Seymour, an IDC analyst. IDC says that IP-related managed services will grow almost 26% during this time. 
"I expect even the calmest part of the market to grow, not at the pace of the last couple of years, but people will continue to spend money on communications services," she says. Metropolitan-area networks also will shine, spurred by the availability of fast and inexpensive Ethernet connections. Enterprise expenditures in the U.S. and Canada for metropolitan-access products and services will grow 552% by 2006, from $420 million this year to $2.7 billion. Services should account for $315 million this year and $2.4 billion in 2006, reports Infonetics Research. But first, providers have to survive today's downturn. Metropolitan Ethernet start-up Yipes Communications filed for Chapter 11 earlier this month, although it plans to continue operating through a restructuring. Numerous competitive local exchange carriers are teetering too, such as McLeodUSA. After losing almost $3.6 billion in 2001, even while revenue climbed 30%, it filed for Chapter 11 bankruptcy protection in January. Overall, 72% of NW200 service providers increased revenue in fiscal 2001, but only 39% posted profit. Albeit, half of the 10 biggest profit makers on the NW200 are service providers. Those that lost money, lost a lot. AOL Time Warner posted a $5 billion loss, Nextel Communications, $2.9 billion, and Qwest Communications, $4 billion. Those that cater to service providers are hurting, too. Ciena lost nearly $1.8 billion and Juniper Networks, $13.4 million, despite revenue climbs of 40% and 32%, respectively. Jon Cordova, an Infonetics analyst, expects a hockey stick curve recovery for equipment makers, starting late this year. While demand grows for data network services, promising a quick return to health, 2002 is becoming the year the industry finishes cleaning house. Related links Vendor news Layoff news Lawsuit
news Earnings
news Venture capital
database Merger and acquisition
database Apply for your free subscription to Network World. Click here. Send this article to a colleague
|
|
|
Responsible for insuring the safety of your network?
Click here to sign-up.
Learn more