Thursday, 5 December 2002 8:30 am
In previous columns, you have heard me me talk about the terrible state of the telecommunications industry, and the fact that the declining investment in R&D in that industry imperils the whole IT industry.  A fascinating letter from an extremely authoritative source from (the Telecommunications Industry Association) captured many of the most relevant facts on the current state of the telecommunications equipment industry, as well as some of the implications. The letter was delivered to the FCC commissioners last week. For those of you who have not read the 13 page document, I have excerpted some of the most interesting facts (all of the companies mentioned, other than Sun, are members of TIA; all of the facts referenced previously released documents; the bolding is mine):

“What is worrying to many analysts and those in the telecommunications industry is that any realized [2002 financial] gains thus far have come from cost cutting – not from growing top-line revenues.  Such practices will not create a sustainable upswing for the industry anytime soon.”

“Venture capital financing for telecommunications also continues to decline. This does not bode well for innovative new telecommunications products and services for broadband infrastructure. Third quarter 2002 figures indicate that venture capital for telecommunications firms fell by 32 percent … Figures such as these have not been this low since 1998.”

“Corporate difficulties are taking their toll on the number of students enrolling in computer science and engineering classes nationwide. The trend does not bode well for the future of telecom and high-tech experts educated in the United States.”

“Dramatic declines in R&D spending have significant negative implications for America’s ability to protect itself  from the new and previously unimagined threats posed by terrorism.”

“Alcatel ... plans to cut its workforce to less than 60,000 by the end of 2003, down from 99,000 employees at the start of 2002, and 120,000 employees as recently as 2000. The estimated most recent 40,000 job cuts planned over two years represent one of the biggest corporate downsizings in European corporate history.”

“Ciena ... will further cut its workforce by 450 employees, or 17 percent. The latest round follows cuts made earlier this year when Ciena eliminated over 1,000 jobs… In addition, Ciena’s R&D spending fell by 26 percent between October 31, 2001 and July 31, 2002. Ciena’s chairman, Patrick Nettles, indicated in mid-November that the market for optical networking gear in 2002 likely would fall 54 percent below last year’s levels, and the 2003 market is expected to be even smaller.”

“Cisco Systems ... has seen its market capitalization plunge to about $74 billion from around $555 billion in late March 2000. Cisco’s research and development spending was down 10 percent from October 31, 2001 through July 31, 2002.”

“Corning ... announced a $600 million restructuring plan that called for the elimination of 4,000 jobs, or 13 percent of its workforce, and the closing of some manufacturing and research facilities. In 2001, Corning cut 10,000 workers. Moreover, Corning’s research and development spending declined by 24 percent from June 29, 2001 to March 31, 2002.”

“Ericsson ... announced plans in May 2002 to cut its research and development costs by about $773 million and to close half of its 80 R&D offices worldwide. Moreover, the company, which had 107,000 employees in 2002, plans to reduce its workforce to less than 60,000 by the end of 2003. The company warned that industry sales of equipment for mobile phone networks would fall at least 20 percent in 2002 and are likely to decline further in 2003.”

“IBM cut 15,000 jobs during the second quarter of 2002, and research and development spending was down 10 percent between September 30, 2001 and June 30, 2002.”

“Intel ... recently announced it would cut its capital spending for 2002 to $4.7 billion, down from its January 2002 projection of $5.5 billion. In comparison, Intel spent $7.3 billion on capital expenditures in 2001. The company also announced plans to cut 4,000 of its 82,000 positions in the fourth quarter of 2002.”

“Lucent Technologies ...  plans to cut another 10,000 employees, bringing its workforce to 35,000 by the end of 2003, down from 62,000 at the beginning of 2002. Three years ago, Lucent employed more than 150,000. Lucent and Bell Labs, its R&D “crown jewel,” drastically reduced R&D spending by about one third from fiscal year 2001 ($3.5 billion) to fiscal year 2002 ($2.3 billion).”

“Motorola ... will reduce its workforce to 93,000 employees by June 2003, down from 150,000 in August 2000. Approximately 17 percent of its workforce was cut in June 2002. In addition, R&D expenditures were down 9 percent between September 30, 2001 and June 30, 2002. Revenues in its personal communication and cellular infrastructure divisions have declined substantially in the first three quarters of 2002.”

“Nortel Networks ... indicated in mid-September 2002 that it may not return to profitability until after mid-2003. Nortel also has indicated a plan to eliminate 7,000 jobs by the end of this year, leaving its workforce with about 35,000, which is down from 95,000 in the last few years. This follows a 28 percent decline in research and development spending by the company for the period September 30, 2001 through June 30, 2002.”

“Sun Microsystems ... plans to cut 4,400 jobs, or 11 percent of its workforce. These latest cuts will reduce the total workforce from about 39,000 as of June 2002 to about 35,000. Furthermore, Sun reduced its R&D expenditures by 3 percent between September 30, 2001 and June 30, 2002.”

“Tellabs ... plans to lay off about 800 of their 4,700 employees in the near future. Previously it had reduced its staff by 3,300. Tellabs cut its R&D expenditures by 13 percent between June 29, 2001 and March 31, 2002.”

“Texas Instruments ... recently announced it would trim nearly 500 jobs from its workforce of about 35,000.”

“Should capital expenditures and research and development spending continue their downward spiral … the health and welfare of the entire high-tech industry – and the U.S. economy – will suffer potentially irreversible harm in the mid- to long-term. This will only serve to erode U.S. industry’s position as a recognized and proven worldwide leader in technological innovation. In other words, if we are not selling equipment, we are not innovating.”

“In order to ensure the industry’s continued survival, having the right regulatory framework in place is a critical and absolutely necessary part of the equation, particularly with regard to stimulating broadband deployment.”

As I have argued in previous columns, we must do something to stop this decline and resume growth, especially in R&D.  Regulatory change (the purpose of the TIA letter) is one of them, but more is needed. 

There is much to be done.