Outlook still grim for 2002

San Francisco--Despite some signs that the telecom market is beginning to level out, the rest of 2002 is looking more grim than anticipated for most of the industry and consolidation is inevitable, according to Paul Silverstein, a principal and senior analyst with Robertson Stephens.

Speaking here today at the Robertson Stephens Technology Conference, Silverstein noted that the top 50 vendors in the market have lost 75% of their market capitalization in the last two years. However, because underlying growth of voice and data traffic is still growing, carriers eventually will be required to invest in new equipment. Before that happens in any meaningful way, carriers will consolidate.

“It’s hard to see an increase in spending until we see a rationalization of the carriers,” Silverstein said. “We will need to see additional consolidation until we see significant improvements in this industry. The very structure of the industry lends itself to economies of scale.”

In the intervening time, carriers will continue working through their inventory. Sometime in 2003--most likely toward the end of the year---carriers likely will reach the end of their stored supplies and be forced to buy more equipment.

“The next two years are going to be difficult,” said Silverstein.