For Subscribers

Get the complete article now!

Eleven analysts and top management from sixty-one sector firms examine the technology & communications sector in this special 238-page U.S. Bancorp Piper Jaffray Technology & Communications Conference issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info396.htm

TWST: What is the broadband service delivery group?

Mr. McEvoy: The group consists of companies that make systems used by service providers and enterprises for the delivery of broadband services. The broadband service delivery group has three major components: core routing, edge switch/routing, and broadband access systems.

TWST: Do each of those components have a separate dynamic at this point?

Mr. McEvoy: They do. Equipment from each of these segments generally fits into a different part of the network and may have a different type of target customer. Core routers from a company such as Juniper Networks (Nasdaq:JNPR) generally are used in the Internet backbone and are used almost exclusively by service providers. Edge switch/routers from a company such as Extreme Networks (Nasdaq:EXTR) are used by metro service providers and enterprises. Service providers are increasingly buying core routers and especially edge switch/routers to deliver value-added packet-based services to their end customers. The broadband access segment targets the “last mile” of the network, where service providers are installing transport technologies such as DSL, cable, and PON (passive optical networking) to alleviate the bandwidth bottleneck and deliver voice, data and video services.

TWST: What are you looking at from the past six months as the carryover trends and issues?

Mr. McEvoy: The major issue clearly is the health and the capital spending outlook of the service providers, since they account for the vast majority of revenues for most of the companies I cover. One lesson that’s become painfully obvious over the past six to 12 months is that if the service providers are not financially healthy, if they are not increasing network deployments, then the equipment companies selling into them will have a challenging time as well. What we’re predicting is that the wireline capital expenditures in North America by the major incumbent service providers will decline about 10% this year and next year. That leads to a challenging environment for the equipment companies in our space that target only service providers.

TWST: That spending base, though, was a very high base over the past 12 months. Does that mean that the companies that you look at providing those services have to necessarily downsize or does it just mean there’s less room for newcomers?

Mr. McEvoy: It means a more challenging time for both incumbent vendors and newcomers. It means there’s less room for newcomers. It raises the bar in terms of execution. Market share gains are especially important in this environment when you’ve got overall sluggish spending on the part of service providers. It really emphasizes execution in terms of not only product delivery but also of marketing and sales. That tends to favor the larger players, although in some cases you can find a relative newcomer that has a very powerful value proposition and strong management execution that can succeed as well.

TWST: Let’s move to the core area companies.

Mr. McEvoy: Sure. And I’ll throw in the end switch routing as well, which includes some of the metro and even the enterprise areas. Extreme is an interesting play because, while I touched on the fact that they’re really a leader in this new metro Ethernet segment — targeting the growth of metro optical networks — that, today, is a pretty small percentage of their sales. But it has a really promising outlook going forward, over the course of the next two to five years. Right now, most of their sales are targeting the enterprise. They’ve been taking share from Cisco (Nasdaq:CSCO) and the Ethernet switch market, and about 70% of their sales are enterprise, which, by the way, is a bright spot relative to the carrier market. Within the enterprise market, which is more in line with the overall economy or influenced by the overall health of the economy, we’ve actually seen some moderation, some improvement in the second quarter. We expect to see some modest acceleration in the second half of this year. So that should bode well for companies such as Extreme that have a significant portion of their business in the enterprise market.

This special issue includes:

1) Wireless Communications & Mobile Computing - In an in-depth (1,600 words) Analyst Interview, Samuel May, Managing Director of U.S. Bancorp Piper Jaffray Inc., examines the outlook for the sector and shares specific stock recommendations.

2) Mobile Computing Communications - In an in-depth (4,100 words) Analyst Interview, William Crawford, Vice President at U.S. Bancorp Piper Jaffray Inc., examines the outlook for the sector and shares specific stock recommendations.

3) Business Commerce & Software - In an in-depth (2,200 words) Analyst Interview, Jon Ekoniak, Vice President at U.S. Bancorp Piper Jaffray Inc., examines the outlook for the sector and shares specific stock recommendations.

4) Entertainment Software Stocks - In an in-depth (2,700 words) Analyst Interview, Anthony Gikas, Vice President of U.S. Bancorp Piper Jaffray Inc., examines the outlook for the sector and shares specific stock recommendations.

5) Collaborative Enterprise Commerce - In an in-depth (2,600 words) Analyst Interview, Timothy Klein, Research Analyst at U.S. Bancorp Piper Jaffray, examines the outlook for the sector and shares specific stock recommendations.

6) Outlook for Optical Components - In an in-depth (1,700 words) Analyst Interview, Conrad Leifur, Vice President of U.S. Bancorp Piper Jaffray, examines the outlook for the sector and shares specific stock recommendations.

7) Technology & Business Services - In an in-depth (2,800 words) Analyst Interview, Brett Manderfeld, Vice President of U.S. Bancorp Piper Jaffray, examines the outlook for the sector and shares specific stock recommendations.

8) Education & Learning Services - In an in-depth (2,300 words) Analyst Interview, Mark Marostica, Senior Research Analyst covering Learning Services at U.S. Bancorp Piper Jaffray, examines the outlook for the sector and shares specific stock recommendations.

9) Broadband Service Delivery - In an in-depth (3,600 words) Analyst Interview, Frank McEvoy, Vice President of U.S. Bancorp Piper Jaffray Inc., examines the outlook for the sector and shares specific stock recommendations.

10) Internet Media & Commerce - In an in-depth (4,200 words) Analyst Interview, Safa Rashtchy, Vice President of U.S. Bancorp Piper Jaffray, examines the outlook for the sector and shares specific stock recommendations.

11) Communication Services Companies - In an in-depth (4,000 words) Analyst Interview, Cary Robinson, Vice President of U.S. Bancorp Piper Jaffray Inc., examines the outlook for the sector and shares specific stock recommendations.

12) CEO and Sponsored interviews (average 2,500 words). Top management of sixty-one sector firms examine the outlook for their firm and the sector.