Wider Is Better
Terayon broadens product base to weather broadband storm
By Karen Brown
from the April 16, 2001 issue of Broadband Week
Armed with a major new modem deal, Terayon Communications Systems Inc. CEO Zaki Rakib can see light at the end of the market recession tunnel--and he's pretty sure it's not an oncoming train.
The Santa Clara-based broadband equipment maker suffered a dismal final quarter in 2000, but got a big boost recently with the announcement that Canadian cable operator Shaw Communications Inc. will buy 250,000 cable modems and associated headend equipment in the next nine to 12 months. That and a diversification strategy that includes telco and semiconductor technology puts the company in a good position to ride out the storm, Rakib says.
Indeed, the Shaw deal is a good sign, Rakib says. "It will signal to the operators that there definitely is capabilities not only to achieve the 15 to 16 percent penetration but to go after 30 or even 35 percent penetration--which is quite interesting, because then you are starting to get close to PC penetration," he says. "I think it further solidifies our position in Canada and our association with the most successful and most aggressive operator."
But Rakib's view of the U.S. cable equipment market remains cautious. The CEO notes that strategy changes are in the wind as cable operators refocus their product priorities.
"I think it is a period of assessment, and I don't think the jury is in yet by the majority of operators in what would be their outlook," Rakib says. "Clearly in the last quarter and this quarter they are taking a very cautious approach, which is, 'Look, we are not going to buy a lot of modems and not going to buy a lot of broadband equipment. We want to wait and see what the competition is going to do, how much money do we have, what are the priorities between data and video and maybe voice.'"
The market lull comes when modem competition is at a peak. Some 130 cable modems and PCI cards now carry a DOCSIS 1.0 certification tag--indicating the modem will operate with any DOCSIS standards-based cable network--but with the retail market stalled that herd will likely dwindle, Rakib says.
"This is a market that will end up being consolidated to four or five players and each player will have its edge," he says. "I think at the end of the day the reason why we will do fine is, one, because we do have a relationship with a significant number of cable operators, and cable operators continue to buy end-to-end solutions ... they like to buy the subscriber side as well as the end-to-end solution."
Terayon's work with developing new cable modem technology--including an upgrade proposal for the new DOCSIS 1.1 standard adding advanced physical layer (PHY) data routing--also might give it a leg up.
"Everybody knows down the road peer-to-peer applications are becoming very popular and will require much more capacity in the upstream, and advanced PHY is a great solution for that," Rakib says. "I think we have a great chance to capture some market share in the future in the U.S. where we relatively have been weaker compared to the rest of the world."
And cable isn't Terayon's only broadband gig these days. With cable, telco and a new semiconductors unit, Terayon almost operates as three individual companies.
Starting in late 1999, the company shelled out considerable funds in a series of acquisitions, primarily in DSL and voice technology. Terayon's telco plan is aimed at network equipment, versus the competition-heavy customer premise gear market, Rakib says.
"I actually relate to our telco business way more for a transport as opposed to a DSL," he notes. "I don't want to be really in DSL per se in telco. I think this is a tough market with well-established players. We play as a transport equipment (provider), connecting fiber networks to copper networks with cross connect and add-and-drop multiplexer--just doing it in a very cost-efficient way. And of course we support some DSL stuff, but the key focus there is on aggregation, routing and the optical interfaces."
The semiconductor business, meanwhile, will likely be spun out in the future "because ultimately we need to make sure we can sell components to current Terayon competitors," Rakib notes. "I will not be able to commit to timing or how it is going to be spun off, but clearly it is going to have to be an independent, arms-length organization."
Diversification is great, but it has its limits. Rakib says there are no plans to expand into the satellite or wireless platforms.
"We actually decided to slow down our activities in wireless and satellite," Rakib says. "The reason is first of all focus. We used to be profitable, and last quarter was not a profitable quarter, and we don't want to exhaust our cash."
|
