Back in 1997, when the dot-com madness was getting started, I used to chat with David Churbuck, my boss back in the day at Forbes.com. We would go dine at some of the best Indian restaurants in Manhattan, and over single malts, discuss, how the bubble was really going to help the tool makers – the gun merchants like Oracle, Cisco, Sun Microsystems and Microsoft. Churbuck encouraged me that I should follow the money, which is how I really got into broadband and all the related stuff. At least you could physically count how many routers Cisco was shipping. (Not exactly, but that story is for another day!)
The point of this “trip down the memory lane” is that I see the same situation arise again in the telecom/technology world. And yes, I am specifically talking about the VoIP space. Its almost like, another week, another VoIP provider.
Yankee Group analyst Kate Griffin seems to be on the same page as me. In her recent report, Fighting Goliath: Can Alternative VoIP Providers Survive?, she points out VoIP is all about incumbents – be of Bell or Cable variety. “While alternative VoIP providers such as Vonage and many of the Vonage-like providers have a first-to-market advantage, their lead will be short-lived,” says Griffin. She estimates that small start-ups have about 66% of the local residential VoIP market, with Vonage as the largest player with a 61% of the local residential VoIP market. “The local VoIP market is already crowded with more than a dozen players vying for local consumers.” If examples of Sun Rocket are any indication, then we have more waiting in the wings.
I think the real beneficiaries of this VoIP madness are going to be tool makers. (That is good news to keep Silicon Valley moving because all these guys will be spending dollars on tools, hardware, marketing … ad agencies love it…. And of course bad PR.) All snides aside, there is ample proof of that. For instance I met with the representatives of Sylantro, which makes VoIP-related application server software. They are running ahead of their own internal targets by a whole quarter. Their year-to-date sales are up a whopping 170% over last year. Though they have a lot of established players such as Qwest and SBC as customers, they are seeing more business come from what they describe as “virtual VoIP operators,” or companies that ride the Level 3 type infrastructure.
Elsewhere, Sonus Networks, reported results that exceeded Wall Street expectations. Guys, this is a company that was kicked off the NASDAQ and made a Boston Sox like comeback. In their most recent quarter they reported sales of $46.8 million, up 10% improvement from the second quarter. Sonus doubled its profit as well to $10.4 million, or 4 cents per share. It also added new customers like European telecom, Interoute. TI has sold nearly 2 million cable phone chips, and the sales of other VoIP chip makers are on an upswing.
Bottom line: if you want to track the rise and fall and slow clawback of the VoIP business, watch the bottom lines of tool makers. As President Bush would say, sometimes, history does repeat itself.