The cutting edge - Viewpoint

Electronic News, May 6, 2002 by Bernard Levine

The hard-pressed telecommunications market may be the chief obstacle standing in the way of electronics industry recovery. The abrupt resignation recently of WorldCom CEO Bernard J. Ebbers symbolizes the intensifying telecom turmoil.

But maybe we can still have a solid electronics recovery this year built on strengthening business in computers, games, automotive, defense and other markets, even if telecom remains weak. It won't be easy, but there may be no alternative.

Whenever I talk to electronics industry executives and analysts these days, they use terms like "awful" and "disaster area" to describe much of the telecom business, words not chosen to characterize other markets. We may have to get used to the idea that telecom will stay that way throughout 2002 and maybe longer, so hone your business strategies accordingly. The rest of the industry is probably in much better shape already and poised for further improvement as the year goes on.

Unfortunately, the telecommunications world may be suffering more than just a temporary downturn of the business cycle. Telecom may be undergoing a longer-term correction of the over-inflated expectations of a few years ago, with business further hindered by uncertainty over future directions. Base stations, cable systems and other infrastructure as well as cellular phones and other equipment are still going to grow significantly in coming years but probably not at the rate many industry players had expected and geared up for just a short while ago.

Broadband and the expanding world of wireless wonders will all happen but will take longer than expected, with a lot more pain along the way. It may be years before the industry sorts out exactly what the mix of competing voice and data communications media and technologies will be, what will stay wired or go wireless, how much consumers and business users stick with traditional long distance and whether they shift to cellular and e-mail, or possibly adopt new communications techniques not even invented yet.

OEMs, contractors, component makers, distributors and others targeting the telecom world will have to be nimble and rapidly adjust to changing demands. And many will have to shift some current focus to other markets. The entire industry will have to rely on these other sectors for substantial recovery this year, but that still might happen. Who knows--PC, game and other consumer electronics sales could boom in the fall.