Recent market movements by networking heavyweights Lucent and Cisco indicate shaky ground in the networking arena. Meanwhile Intel may be shifting its focus from wired to wire-less, say analysts
Though many companies make use of the quarterly announcements period as an excuse to cut staffing - "trimming the fat", drastic changes seem to be an industry-wide trend in the networking arena.
Cisco's waning warning
The recent announcements of Cisco’s last quarter’s earnings and its failure to hit expectations, is only the latest in the series of events that seem to plague the IT networking industry. The eighth-largest US company by market value, Cisco declined US$4.69 to US$31.06, costing investors US$34 billion.
The company said revenue may fall as much as 5 percent this quarter from the last one. This might be an indication that the company may be hitting a ceiling in its growth.
Shortly after the report, US stocks declined, the Nasdaq composite falling 2.1% to 2607.91.
Lucent goes for a spin
Just a little before that, Lucent announced that they would be releasing over 10,000 personnel in order to remain 'viable'. The company was reported saying that it had plan to eventually shed some 32,000 staff worldwide.
In the midst of the downsizing, the company also plans to spin-off its optoelectronic and semiconductor operations in March. Agere Systems makes semiconductors and components that send and receive light waves carrying data and voice traffic over optical networks. The company is one of the core reasons some investors are still hanging on, say analysts, who believe that Lucent investors are anxious to see the company refocus and slim down as fast as possible.
In spite of the weak IPO market, especially in the tech sector, Agere hopes to be able to raise up to US$7.4 billion in its IPO, according to an SEC filing. A few weeks earlier, Intel enlarged their share in Xircom Inc. by acquiring 100% of the company for US$748 million - about 1.5 times Xircom's annual revenues. The two companies have long been partners, and have already been sharing some technology in previous years.
The acquisition should be completed by the end of the year's first quarter.
The acquisition would strengthen Intel’s mobile business, especially in the corporate wired and wireless networking technology, according to Intel officials.
What the analysts say
Frost & Sullivan analyst Michael Wall believes that the slowdown of PC sales, and the shrinking microchip processor market, was a strong factor for Intel's decision to move into wireless networking.
Intel launched some preliminary wireless networking solutions last year, and is also interested in Bluetooth technology, areas which Xircom have made headway in - reason enough to make the acquisition "an excellent move for Intel", according to Wall.
Others aren't so ready to report the acquisition in such glowing terms. Analysts from the META Group agree that Intel stands to gain from Xircom's expertise in the wireless mobility arena, but believes that the chipmaker also wants to create a brand-awareness in consumer markets. This is especially apparent in its launch of home networking solutions earlier last year. Xircom's Rex PDA is also a consumer-targeted product, and the strategy for this direction is hard to fathom.
"Intel can sit back and print money in its back-end markets," said Peter Burris, a META Group analyst. "The closer it gets to end users, the more it prints support calls and costs instead."
Intel may be also considering creating a wireless LAN (WLAN) motherboard, a wireless PDA to compete with Palm, or both. The Xircom purchase, combined with Intel’s own low-power processor chip and the Digital Signal Processing (DSP) technology that it acquired two years ago, gives Intel all the pieces it needs for a wireless PDA, if it wants to enter that market.
Intel has steadily been taking market share in the LAN interface market by adding that technology to its motherboard chip set, and META Group believes there is a possibility it may be preparing to do the same thing with wireless networking.
This move may make more sense in the long run. With PC growth slowing down, the existing traditional networking market may be shrinking, especially since portable devices seem to be getting more popular.
Technowledge Asia, which provides business intelligence and analysis in alliance with The Yankee Group, believes that Intel could be counting on the acquisition improve their reach in future mobile and connectivity ventures.
"What we foresee is that in the long term, Intel can leverage on the brand name, especially in portability, and develop connectivity products for mobile devices and network appliances," said Niel Hortillo of Technowledge Asia. "In this regard, Intel will certainly increase their revenue since we all know that the market for PC worldwide has generally flattened."
While in the short run, it may look as though Intel is saving Xircom's bacon, the turn-about might actually be that Xircom's expertise may provide Intel a way out of a desktop down-spiral.