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Bad news flows downhill, so it was not surprising the slowdown in equipment orders among broadband network operators didn't do cable modem vendors any financial favors in the final months of 2000. But does that signal a full-blown recession in the cable modem market for 2001?
Word around the industry tends to be hopeful, if tinged with a bit of concern.
During a fourth-quarter earnings conference call Jan. 25, Excite@Home CEO George Bell said while the high-speed cable modem service's affiliate MSOs were keen on promoting Internet service, they had shifted away from growth and were "very sensitive to their cash flows."
Add to that the fact that while Excite@Home is still projecting strong growth for the 2001, the projections are in the teens-a significant downturn from the 20 percent to 30 percent growth targets from the fourth quarter 2000.
But growth is still projected to be strong, and there is not a sense of panic among the major modem makers. That includes Com21 Inc., which probably recorded the biggest fourth-quarter hit, with a pro forma net loss of $20.8 million and a net loss of $1 per share.
"It's fairly well known that in the year 2000, in Q2 and Q3 the products were basically on allocation, so there was a lot of nice growth, but you couldn't supply everything," says says Lief Koepsel, vice president of corporate marketing. "So everybody knew that was happening. Then you see Motorola, you see us, you see Terayon announce that our modem sales are down for Q4."
At the same time cable modem services including @Home, Comcast, Cablevision and Rogers announced increased subscription rates. For that reason, Com21 is optimistic about an improvement in the first quarters of this year.
"We don't think it is going to slow down deployment. We think Q4 was a speed bump in the road, and because of the allocation everybody overacquired and overprocured because they didn't know how long the allocation was going to last," Koepsel says. "So now in Q1 we are seeing people say 'yeah, we want product'-we're seeing an uptake. We expect to make some further announcements of more volume agreements as the quarter goes on."
That appears to have begun with the recent announcement that Comcast Online Communications has put in a volume order for its DOCSIS 1.0-certified DOXport(r) 1110 cable modem. Although specific numbers are not being released, Koepsel says this is the largest order Com21 has ever received.
Similarly, top modem maker Motorola Inc. also saw cable modem sales slip, but the fourth quarter saw the announcement of a major deal with Comcast Cable Communications, Inc. to supply SB3100 and SB4100 cable modems through 2001.
A spokesman for Terayon also pointed to a fairly optimistic outlook for 2001.
"We still think it is probably too early to say for all of 2001 how product deployment will go," he says. "However, things still look pretty good overall from talking to our customers."
While still not a major distribution share, cable modems sold at retail may prompt some operators to scale back their purchases, according to Scott Sternberg, director of development for Excite@Home. Excite@Home entered a limited retail agreement with RadioShack late in 2000 and, based on strong uptake, is looking to expand the promotion through its member MSOs.
"What we are looking at is a move toward self-installation and in putting the process in the hands of the customers," he says. "I think you are seeing a shift in paradigm."
But 2001 may not be kind to all cable modem makers. As with others, Com21's Koepsel sees a winnowing among the 30-plus certified cable modem makers.
"By the end of 2001 you are going to see the strengthening of the top five and eight. Those players are going to get much stronger, and the people that aren't in that top (group) are going to fall out," he says. "I would say we would be in the top three."
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