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Economic meltdown to change telecom landscape, report says

The economic meltdown that is interrupting a new technology spending cycle will also create telecom industry winners that could change the provider and vendor market landscape forever, a new economic forecast says.

The tech industry that includes the telecom and the enterprise networking sectors has gone through some hard times in the last 20 years, but the author of a new economic forecast for the technology industry says he's never seen anything like this.

The title says it all. In Surviving a Tech Market Nuclear Winter: A Planners Handbook to Tech Success in Today's Challenging Financial Times, industry analyst and consultant Tom Nolle, president of CIMI Corporation, says "it's hard to see how we could have a worse juxtaposition of planning activity and economic events."

It will even create the first real opportunity to either gain or lose significant market share that we've had tech in the last 20 years.
Tom Nolle
PresidentCIMI Corporation
But Nolle also believes that if companies take the right actions in a bad market, they can come out of this economic crunch stronger than when they went into it.

"This is a crisis that can't be fixed at the tech level. The industry is going to be as much a hostage to this as the consumer, but it can be substantially remediated at the individual company level," said Nolle, whose report looks at the macro economic conditionsand then examines the effect on telecom and enterprise technology planning.

"This situation comes at a time when the industry was trying to start a new technology spending cycle that we hoped would raise IT spending quite significantly across the board. We've now introduced a cataclysmic economic problem that will make starting that new spending cycle very challenging," Nolle said.

The economy will affect the entire telecom/media space, Nolle says, from online ads to chip sales. The economic situation will seriously impact the market in 2009 and significantly impact it in 2010. "In some sense, it will impact the industry forever," he said.

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There will be winners and losers, says Nolle, who has been forecasting the economic environment for the technology industry since 1989. The CIMI Corp. report is an outgrowth of the company's normal forecasting process, but Nolle said he organized it differently this year because he's never been confronted with a situation like the one we have now. Still, some service providers and vendors will hunker down for the winter, and others will go out and try to improve their market share, Nolle says.

The tech industry has been through booms, meltdowns and busts. So what's different now? According to Nolle, it's likely that a fundamental market shift will result. "It will even create the first real opportunity to either gain or lose significant market share that we've had tech in the last 20 years," he said.

Certain aspects of enterprise network spending are going to be at significant risk, according to Nolle, and certain parts of service provider spending might be at risk. "I say might because economic problems are always both problems and opportunities."

Playing telecom survivor, for real

Tier 1 carriers are taking the view that the economic problems are an excuse for changes in planning rather than a revolution because they have about a seven-year capital cycle, Nolle said. No one really expects this to impact the service provider market for more than five or six quarters, so as far as they're concerned, this may push back some projects and change some priorities.

"The only way it will make a fundamental change in the service provider market is if there's a fundamental change in consumer demand, and unless it lasts longer than we currently expect it to, it probably won't do that," Nolle said.

Small service providers and vendors that lack significant product breadth and control may be in for the roughest time, while broad-based players in the market may take the least revenue hits. "In this environment, it's possible that a small vendor could be bypassed altogether," Nolle said. "It's also possible that service providers will be concerned about the economic viability of their suppliers, so some companies would be out of the question."

And some may come out in a stronger market position than they ever imagined.

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