The credit crunch and the slowing economy is beginning to impact everyone from mobile phone makers to phone companies. The economic woes are now spreading to other parts of the telecom food chain, taking down everyone from equipment makers to chip companies. And this is just the start… trouble has once again returned to the world of telecom. Earlier this month, Cisco Systems came out with an unusually downbeat forecast. The company, whose sales have traditionally seemed to defy gravity, admitted its numbers were going to fall for the first time in five years. Meanwhile its book-to-bill ratio — a key metric of future sales strength — has already dipped below 1.0.
“We are seeing customers, not just in the financial, automotive or retail sectors, but across most of our enterprise industries, facing what they view as a very challenging business environment,” Frank Calderoni, Cisco’s chief financial officer, told Wall Street analysts on a conference call. The problems, he said, have spread worldwide.
Cisco is widely considered to be a bellwether of the telecom and infrastructure sector. Its gloomy outlook, therefore, proves just how negatively affected the industry at large will be by the vise-like grip of the economic downturn.
AT&T’s Ralph de la Vega, CEO of that company’s mobility and consumer markets division, told me that anything related to the housing market was going to be in trouble. What that means is that the demand for broadband connections, voice lines and video services is going to slow drastically. Why? Because the growing number of new homes translated into strong demand for new communications services such as cable and broadband.
Now that the housing market has ground to a halt, sales of such services are going to decline, which in turn means that the service providers — from AT&T to Time Warner Cable — are going to have a tough time spending more dollars on their infrastructure. And that is going to impact sales at equipment makers...
Layoffs Come to Telco Land
Big job cuts are not just for startups. The grim reaper has started to take its tool on the telecom ecosystem. We have already reported about the job cuts at Nokia (600) and Motorola (3,000) and Nortel is likely to cut about 10 percent of its work force. The malaise has started to spread to component makers. For instance, JDSU cut 400 jobs, shut down seven R&D centers and three plants. Anadigics, a Warren, N.J.-based broadband wireless and wireline chip maker cut 15 percent of its work force. ST-NXP Wireless has cut its workforce by 500. All these companies are reacting to the broader market declines and slowing demand from consumers. Vodafone, one of world’s largest telecom operators, is looking to cut jobs soon.
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