Sector summaries

2002 was a test of survival for many companies within the enterprise applications, infrastructure and service provider sectors. Yet analysts remain bullish that promising technologies will secure each segment's recovery.

Enterprise applications

Users continue deploying large ERPCRM and supplier relationship management software packages, but application integration and smaller, XML-based, gap-filling tools are gaining allure.

These XML-based "composite applications" consolidate or process data from multiple applications to create, for instance, a forecasting report, says Joshua Greenbaum, principal for Enterprise Applications Consulting. He points to SAP's xApps or, to some extent, J.D. Edwards' collaborative and forecasting tools as examples of composite applications. "Customers don't want to buy three-letter acronyms anymore. They want products to solve specific application problems," he adds.

Enterprise application integration (EAI) tools also are gaining popularity. They, too, let various applications work together. Although IT budget growth will increase a mere 2% through 2004, spending on integration, including middleware, EAI, database and electronic data interchange will grow at twice that rate, AMR Research finds.

Internal application integration has the highest priority, then extended enterprise projects, with spending of $2.8 million annually vs. $1.5 million, respectively, according to 2002 budgets, AMR says.

Security software remains a top budget item, too. This market will grow by about 16%, compounded annually from 2001 to 2006, IDC says.

Despite a rosy growth future, NW200 software vendors - even those offering security products - still feel the soft economy. Some 60% reported lower revenue in 2002 than in 2001, and 74% declared a loss.

Still, the sector posted respectable numbers this year over last: The 2002 average revenue for the sector was $976 million, which generated $6 million in profit. This compares with 2001 revenue of $1 billion on which these vendors lost $221 million. (These figures exclude IBM, included in the infrastructure sector instead because it earns 50% or more of its revenue from hardware sales.) The ever-profitable likes of Microsoft and Oracle carried this segment, helped along by ERP/CRM/SRM vendors such as J.D. Edwards and PeopleSoft and topped by security vendors Check Point and Network Associates - albeit both Check Point's revenues and profits slid from last year, even though its 60% profits from $427 million in revenue keep it as one the NW200's most profitable companies. Also of note is Symantec's 26% increase in revenue, jumping it over the $1 billion mark.


The infrastructure market continues to sail on a predictable path based on the need for ever-increasing speed. And so four out of the 10 most profitable NW200 companies are those that make their livings selling infrastructure gear to handle that need for speed - Cisco, Dell, IBM and Intel.

Still, overall sales in the bread-and-butter router market declined 15% to $6.1 billion in 2002, Dell'Oro Group says. That won't always be the case. As Ethernet continues to rise to carrier-class speeds, worldwide sales for Gigabit Ethernet equipment, including routers, will reach $10 billion by 2008, Pioneer Consulting says.

The 10 most profitable companies

These NW200 companies netted the most total dollars as profit.
Profit rank


Revenue rank

Until then, infrastructure vendors have been eyeing technologies to generate growth over the next few years. The likely candidates, analysts say, are IP PBXs, wireless LAN (WLAN) switches and newfangled storage systems.

"We are definitely seeing traction for IP PBXs," says Kathryn Korostoff, president of Sage Research. In a Sage IP study, 75 of 100 users surveyed named cost savings as a reason to buy IP PBXs, while more than 60 said increased productivity was a big driver.

According to WinterGreen Research, the worldwide IP PBX market will reach $3.1 billion by 2007, up from $272 million in 2001.

WLAN's promise stems from decreased costs, security improvements and the cry for anytime/anywhere connectivity. Worldwide WLAN hardware revenue totaled $1.7 billion in 2002, tallying $455.4 million in the fourth quarter of 2002, Infonetics Research says. North American businesses accounted for 58% of purchases, with corporations buying 41%, compared to spending by service providers (9%) and consumers (50%). Infonetics predicts a $2.7 billion worldwide WLAN market in 2006.

When it comes to storage, The Yankee Group estimates that $14.3 billion of storage-area network equipment, including network-attached storage devices, will be sold in 2003 and $24.2 billion in 2005. Still, many NW200 storage-specific hardware and management vendors struggled in 2002, earning a mean revenue of $3.4 billion with losses totaling $115 million. Whereas network and server gear vendors hit $8.3 billion in revenues, $94 million in profits (with some, such as Cisco, HP and IBM, also in the storage market).

Growth can't come too soon. When combining network gear vendors with storage system makers, 74% experienced declining revenue in 2002 over 2001, with 74%, too, declaring a loss.

Service providers

The service provider sector isn't completely over its troubled past, but analysts are optimistic. Four of the 10 most profitable NW200 companies fall in this sector: BellSouth, Nextel Communications, SBC and Verizon.

Infonetics Research is bullish on the future of both carriers and their suppliers by 2005, says analyst Kevin Mitchell, although he believes the sector will stay soft this year.

Much promise lies with the regional Bell operating companies' aspirations of becoming national data carriers - once they secure FCC approval, Mitchell says. "RBOCs are definitely pushing Multi-protocol Label Switching as a transport of future IP services," he says. RBOCs will serve up new MPLS-based services such as managed VPNs. NW200 providers offering such services, or with announced plans to do so, include BellSouth, SBC and Verizon. Mitchell says he sees a place for competitive local exchange carriers to serve small to midsize businesses, as RBOCs focus on corporations.

WinterGreen also sees RBOC growth expecting  them to tally $238.1 billion in revenue by 2007, from $170.1 billion in 2001, with wireless offerings as big drivers. Probe Research concurs, predicting that in 2007 IP over wireless will join voice-over-IP technologies as a major service provider offering.

Yet the old standby, frame relay, will grow in popularity too, The Yankee Group says. The frame relay market is expected to reach $10.7 billion in the U.S. by 2006, from an estimated $8.4 billion in 2002.

Still 2002 was a test of survival for many carrier suppliers, including Ciena (No. 87) and Sycamore Networks (No. 176). Revenues were down 77% and 83%, respectively. Losses were about $1.6 billion for Ciena, $380 million for Sycamore.

When considering both providers and equipment makers, 68% declared a loss, while 52% reported declining revenue. In dollars, this amounts to a mean of $6.6 billion in revenue, resulting in a $2.8 billion loss. Note that these figures do not include WorldCom, dropped from the NW200 for its Chapter 11 status. But they do include some other astounding losses: AOL Time Warner's almost $100 billion, Qwest's nearly $36 billion and AT&T's $13 billion.

Copyright © 2003 IDG Communications, Inc.

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