Is This Technology's Worst Industry?

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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Austin Smith has no positions in the stocks mentioned above. Eric Bleeker has no positions in the stocks mentioned above. The Motley Fool owns shares of Infinera. Motley Fool newsletter services recommend Acme Packet and Infinera . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On May 29, 2012, at 11:47 AM, Infostack wrote:

    The carnage is not limited to the past 12 months, rather the past 12 years. Ever since the Telecom Act (which was a well-intentioned farce) the service providers have remonopolized the sector. What is left--vendors and service providers alike--need a paradigm shift, a la the data processing industry 25 years ago. The vertically integrated carrier structures do not allow capex/opex to scale effectively at every layer. The result is services that are overpriced 200-1000% retarding growth for all. Until a horizontal orientation sets in broadly for lower, middle and upper layer solutions the sector will continue to die by a thousand cuts. I am surprise you didn't include Nokia and RIMM in the discussion as well.

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