May 23, 2012
The following video is part of our "Motley Fool Conversations" series, in which senior technology analyst Eric Bleeker and consumer goods editor and analyst Austin Smith discuss topics across the investing world.
Through last weekend, the telecom equipment industry had put up some ugly results over the past year. Ciena was down 57%, Ericsson down 44%, Infinera down 19%, Alcatel-Lucent down 76%, and Acme Packet down 71%. In this video, Eric wonders if this industry has become much like the airline industry: hugely capital intensive and unable to benefit shareholders. Over the last 20 years, most airline companies returned close to -100% returns thanks to hyper-competition and rising fuel costs. The telecom equipment industry suffers from the pricing power large telecoms can wield and also from new low-price entrants from China. Not only that, but smaller innovative companies like Infinera and Acme Packet have a hard time breaking in as telecoms fear their longevity. Even suppliers to the telecom industry like JDS Uniphase -- which was down 53% over the last year itself -- have struggled to maintain their own pricing power. Eric offers a look into what's holding the telecom industry back, but also offers some hope from an airline example that succeeded where others failed.
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