Networking Recovery Imminent, Says Analyst

While most analysts predict continued gloom for the hi-tech and telecoms markets, one networking expert is convinced of an economic boost as early as this autumn.

Venture capitalists (VCs) are beginning to funnel money into network infrastructure companies, as the technologies compensate for the internet's IP shortcomings which were blamed for the hi-tech sector's economic difficulties.

Will Cappelli, research fellow for network management at Giga Information Group, is convinced that this kind of investment will lift the sector's overall economic performance.

"Even small investments at deep infrastructure level have an exponential effect further up," he said. "Money is still flowing, but it is targeted at critical infrastructure areas that will enable IP to become a business-class platform."

Cappelli predicted the downturn late last year, and said it happened so quickly that companies disappeared overnight. It left VCs with little time to take their money out and vast investments remained in the technology sector. Now they are streamlining their portfolios.VCs reasoned: 'Let's clean out and reinvest in the companies that have survived so far'. They pulled money out of dotcoms and targeted infrastructure companies, such as optical layer, internet QoS and operation support systems (OSS)," he said.

Cappelli is confident in spite of recent disappointing results from OSS companies Lucent, Nortel and Cisco. He blamed Lucent's decline on bad management and its rebranding of vendor-independent technologies into Lucent products. Nortel, he said, suffered from some "dodgy technology choices", while Cisco products were too specific.

But Peter Sommer, research fellow at the London School of Economics, was sceptical. He detected no great cause for optimism as the technology sector is tied into the global economy as a whole. He does not expect an upturn until next spring at the earliest.