Modemus Exodus
By Evan Blackwell
from the June 18, 2001 issue of Broadband Week
Alcatel and 3Com continued what is quickly becoming a mass exodus from the DSL modem business earlier this month when both companies officially announced their departure from the space.
Joining Nortel Networks, who made a similar move in May, 3Com decided to discontinue its manufacture of DSL modems targeted toward the consumer market as part of a program to return to profitability during the slumping market times. Alcatel, which held the number one market share at almost 30 percent, surprised many by selling its DSL modem business to Thomson Multimedia on June 7 for $373 million. In 2000, Alcatel sold 1.7 million units.
"Alcatel does kind of surprise me, because this is a space that they've seemed pretty bullish on in the past," said Ernie Bergstrom, a DSL analyst with Cahners In-Stat, a research firm owned by the same parent as Broadband Week. "These folks are just trying to shore up and reach profitability by focusing on the areas that they know best."
Bergstrom said the alterations by 3Com were expected, and the company will maintain production of business DSL routers and modems that target small business and enterprises. What 3Com termed as the "glut of consumer cable and DSL modems" has driven down prices and margins to the point that the company didn't feel the business had the profit potential it needs.
In the case of Alcatel, the shift means a renewed focus on carrier network equipment. The move was announced as part of a restructuring plan after the company's glitzy potential merger with Lucent Technologies tanked in early June. Alcatel will keep its DSL infrastructure business, but suddenly became wary of a modem business becoming increasingly more consumer-angled.
Which is exactly where Thomson now fits into the mix. Under its RCA brand name, Thomson is already one of the largest makers of consumer electronics in the U.S. The company also has experience in the broadband game, as one of the largest cable modem and satellite set-top box manufacturers in the U.S. The new deal with Alcatel marks Thomson's first entry into DSL.
"We see a tremendous opportunity for broadband products, and we already know what works in the cable sector," said Dave Arland, a Thomson spokesman. "We believe DSL is going to be one of the key technologies. We have no qualms following broadband wherever it's going to go, be that cable modems or DSL."
Another powerful name in the modem business, Cisco Systems, doesn't have any near-term plans to get out of the CPE game. Cisco, which focuses on selling modems to small and medium-sized businesses, just issued a new line of CPE designed for SHDSL at this month's SUPERCOMM. Enzo Signore, the director of marketing for Cisco's DSL business unit, said vendors with a focus on the business CPE market don't have the same competition and price pressure problems as those in the residential CPE space.
"It's a more elaborate product set. There are fewer vendors in the space," said Signore. "Fewer vendors have the software expertise and the engineering headcount to offer these products to business customers."
The reorganization of the likes of Alcatel and 3Com could very well turn out to be a boon for smaller players that have carved out a respectable market share in DSL CPE, most notably Siemens subsidiary Efficient Networks and Westell Technologies. Neither company has indicated any moves away from its specialty.
"Some larger companies are more focused on other parts of the network. Westell's going to continue to be a big supporter of broadband, an important part of which is CPE," says J.W. Nelson, CEO at Westell. "We have a good market share, and we have a good relationship with the RBOCs and the ILECs. We plan to be in the DSL business."
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