Power Plants and Systems Affecting the Telecom Industry

Transcription

1 TELECOM POWER PLANTS AND POWER SYSTEMS March 2002 Gatehall I One Gatehall Drive Parsippany, New Jersey USA phone fax reports@insight-corp.com

2 TELECOM POWER PLANTS AND POWER SYSTEMS TABLE OF CONTENTS Chapter I EXECUTIVE SUMMARY The Crash of Power Plants and Systems Industry Overview Key Success Factors for Power Plant Suppliers... 3 Chapter II MARKET OVERVIEW Definitions and Background AT&T Establishes Design and Engineering Standards Western Electric and Bellcore AT&T s Bell System Specifications New Equipment Building Systems Standards Bellcore Updates NEBS Role of Functional Common Core Components Power Plants and Systems Overview AC vs. DC Powering Options Power System Elements Power Distribution Grounding and Protection Management of Power Supplies Power Requirements for Different Scenarios CO and Co-Lo Installations Customer Premises Installations Alternative Energy Sources Network-based vs. Subscriber-based Powering...23 Table of Contents Reproduction without permission i

3 Chapter III INDUSTRY TRENDS AND CHARACTERISTICS Historical Evolution of the Market The Monopoly Environment The Emergence of Local Competition Navigating Current Market Uncertainty Factors Influencing New Product Acceptance Technological Rate of Change Standardization Process Economic Reasons for Deploying New Technologies Co-Location Trends Mandated Co-Location Requirements Challenges Posed by Industry Slowdown Impacts on EMS Suppliers Impacts on Power Plant and Systems Suppliers Shifts in Marketing Focus Historical Marketing Focus Transformations in Marketing Strategy Various Distribution Channels Wholesale Distribution Direct Sales The Typical Purchasing Process New Marketing Avenues and Promotional Events Supply Chain Structure Supply Chain Components Traditional vs. Improved Supply Chain Interactions Web-Based Transactions Support Services for Procurement Program Management Key Account Support Programs...62 Chapter IV VENDORS Introduction Electronics Manufacturing Services Firms Power Plants and Power Systems Firms...66 Table of Contents Reproduction without permission ii

4 Chapter V FUTURE TRENDS AND OPPORTUNITIES Key Challenges Meeting Support Requests of Providers Scarcity of Qualified Personnel Functional Support Services The Move Toward Outsourcing Manufacturing Outsourcing Logistics Outsourcing Power Plants and Systems Trends Service Provider-Specific Opportunities CO Growth-on-Demand Greenfield Locations Co-Location Carrier Hotels...78 Chapter VI POWER PLANTS AND SYSTEMS INDUSTRY FORECAST Introduction Methodology US Economic Outlook Forecasts...83 Appendix GLOSSARY Table of Contents Reproduction without permission iii

5 TABLE OF FIGURES Chapter I I-1 Telecom Components Revenue, Power Plants vs. All Other Segments, 2001 and Chapter II II-1 The Role of Functional Common Core Components within a Central Office...13 II-2 DC and AC Power Supply System Configurations...15 Chapter III III-1 Proposed Multi-Tenant Building Specification: Conceptual Layout...34 III-2 Multi-Tier Distribution Channel Used by Functional Common Core Component Firms...49 III-3 Supply Chain Management Framework...58 III-4 A Typical Program Management Model...61 Chapter VI VI-1 Telecom Components Revenue, Power Plant vs. Other Segments, ($Millions)...84 VI-2 US Power Plant Revenues by Type, 2001 vs VI-3 US Small-to-Medium-Sized Power Plant Revenues, ($Millions)...86 VI-4 US Large Power Plant Revenues, ($Millions)...87 VI-5 US AC-to-DC Converter Revenues, ($Millions)...87 Table of Contents Reproduction without permission iv

6 TABLE OF TABLES Chapter I I-1 Key Elements for Success of Power Plant and Systems Firms...4 Chapter II II-1 Updates to Original NEBS Specifications...12 II-2 Typical DC Voltages for Selected Applications...17 II-3 Power Plant Installation Locations...20 Chapter III III-1 Critical Issues for the Power Plants and Systems Industry...29 III-2 Representative North American Telecommunications Standards Organizations...32 III-3 Proposed Specifications for Multi-Tenant Building Telecom Equipment Rooms...33 III-4 CLEC Co-Location Demands...39 III-5 Advanced Services Order Co-Location Requirements...39 III-6 Key Near-Term Challenges Facing Network Operators...41 III-7 Products Manufactured by EMS Firms...42 III-8 Typical Companies Outsourcing Manufacturing to EMS Firms...43 III-9 Power Plant Manufacturer Acquisitions of Other Power Plant Suppliers...45 III-10 Purchasing Criteria of Typical Customer Types...53 III-11 Key Criteria Considered by Service Providers When Selecting a Vendor...55 Chapter IV IV-1 Strategic Acquisition Objectives for Functional Common Core Component Suppliers...64 Chapter V V-1 Functional Support Services Offered to Network Operators...69 V-2 Potential Benefits and Problems of Outsourcing Manufacturing and Logistics...70 V-3 Outsourcing Vendor Capabilities Checklist...72 Chapter VI VI-1 US Power Plant Revenue, ($Millions)...85 Table of Contents Reproduction without permission v

7 CHAPTER I EXECUTIVE SUMMARY 1.1 The Crash of During the mid-to-late 1990s, the telecommunications industry exhibited an economic growth rate few other industries could match. Beginning in the third quarter of 2000, however, the optimistic outlook of the e-business and communications sectors abruptly changed. There was a realization that Wall Street expectations for communications companies were becoming extravagant, and that credit and capital financing were a bit too easy to find. In addition, booked orders were excessive, business practices were lax, and inventories were allowed to grow to unacceptable levels. The failure of many dot coms, Internet service providers (ISPs), competitive local exchange carriers (CLECs), and data local exchange carriers (DLECs) led to declining demand for computers and networking infrastructure. These cutbacks forced established carriers like AT&T and MCI WorldCom to limit their own spending plans and set the stage for the current downturn. How severe is this downturn? The facts of the previous year paint a grim picture: The Wall Street Journal (July 25, 2001) stated that in March 2000, the telecom equipment and service providers had combined market caps totaling $2.7 trillion; by July 2001, this number was down to $1 trillion. The decline in the valuation of the overall telecom sector has yet to stabilize. According to Economy.com, the fall in telecom equipment spending accounted for almost one quarter of the drop in economic growth from the first half of 2000 to the first half of Brokerage Grubb & Ellis Co. estimated that during the boom years of the late 1990s, real estate developers built more than 50 million square feet of carrier hotel space; 39 percent of that space was vacant at the end of June Chapter I Reproduction without permission 1

8 The downturn is having a ubiquitous effect on the telecom industry, stinging service providers and equipment manufacturers alike. According to Challenger, Gray & Christmas Inc., a Chicago-based outplacement firm, total job cuts in the telecom industry during 2001 weighed in at 317,777, significantly more than any other industry and more than three times the total of the highly-publicized job cuts in the dot-com industry (100,925). Telecom job cuts in 2001 were nine times greater than in 2000, and the 2001 number also represents the highest one-year total for any industry since the firm began tracking job cuts in Almost two million people remain currently employed in telecommunications; three quarters by service providers, one quarter by manufacturers. 1.2 Power Plants and Systems Industry Overview The US telecommunications industry is experiencing one of the worst slumps in its history. Order terminations, buildout cancellations, bankruptcies, collapsing stock prices, deteriorating margins, and questionable business practices have left the euphoria felt by the industry little more than a year ago in tatters. Major companies now expect the current industry malaise to persist throughout the remainder of How did this happen? What further ripple effects could occur throughout the industry? Most importantly, what can firms do to navigate safely through these rough waters? This report examines these issues and others from the perspective of the power plant and systems suppliers one of several functional common core component sectors that collectively underpin the entire telecommunications industry. INSIGHT s forecasts divide the power plant segment into three categories: Large DC-to-DC power plants (5,000 to 10,000 amps); Small to mid-range DC-to-DC power plants (200 to 5,000 amps); and AC-to-DC converters. As shown in Figure I-1, power plants and systems will represent an increasing proportion of the total functional common core component sector revenue in the US (including wire and cable, construction, and integrated electronic enclosure packaging) through Power plants and systems revenue may only represent a Chapter I Reproduction without permission 2

9 small portion of the overall functional common core components industry revenues 5.4 percent of the industry s $25.3 billion total revenue in 2001 but, due to its strong growth rate, it will account for a larger percentage (6.5 percent) of the $33.4 billion overall functional common core components industry by Figure I-1 Telecom Components Revenue, Power Plants vs. All Other Segments, 2001 and Power Plants and Systems 5.4% Power Plants and Systems 6.5% 2006 All Other Segments 94.6% All Other Segments 93.5% Note: The All Other Segments category includes integrated electronic enclosure packaging, construction, and wire and cable. The steady growth in power plant revenue over the forecast period is attributable to the increasing attention being given to power plants and systems by network operators. Providers have deferred improvements of their power-related infrastructure in favor of other projects for a very long time; however, INSIGHT s research suggests that Bell companies, despite the downturn, are now concentrating on installing new power plants and systems, as well as upgrading and maintaining older equipment. For a more in-depth look at the other functional common core component segments, consult INSIGHT s reports entitled Telecom Construction and Professional Services , Integrated Electronic Enclosure Packaging: Frames, Cabinets, and Racks for Telecom Equipment , and Wire and Cable: Harnesses, Fiber, Copper Wire, and Coax Key Success Factors for Power Plant Suppliers The key trends that power plant and systems firms need to address are summarized in Table I-1. Chapter I Reproduction without permission 3

10 Table I-1 Key Elements for Success of Power Plant and Systems Firms Addressing oversupply problems Meeting demands for new construction and operator buildouts Following key industry standards for products, paying attention to the requirements of the installed base Addressing a key shift in the supply chain infrastructure, whereby many large equipment vendors are outsourcing their manufacturing operations Improving available technology in often-neglected areas A gray market for power plants and systems is becoming quite pervasive, as operators unload excessive inventories below current list prices posted by vendors. Gray market sales will have a direct effect on the original manufacturers inventories, which are already at record levels. Now and in the future, successful companies will be those that are able to manage inventory levels efficiently as demand changes. The introduction of new operators and services often requires the new construction of telecom buildings, the refurbishment of non-co facilities, and substantial reconfiguration of existing COs. Among a slew of other functional common core components, these facilities are required to house power plants and systems. New construction, while tempered by the slowdown, still exerts a positive effect on demand in the power plant sector. The investments required for constructing and maintaining the existing plant and infrastructure, as well as superimposing new technologies, amount to billions every year. Successful vendors will pay close attention to product standards and how to integrate new technologies within the network. Standards have played a key role in increasing the use and acceptance of telecom infrastructure products and core components. Network operators often struggle to implement numerous new infrastructure products with less-than-stable specifications and standards. Vendors need to understand the true nature of the installed base of equipment. More and more, basic manufacturing is being outsourced to third-party electronic manufacturing suppliers (EMSes). The EMS firms (such as Flextronics International and Sanmina-SCI) have formed strategic relationships directly with network operators and power systems equipment suppliers to coordinate logistics, Chapter I Reproduction without permission 4

11 installations, manufacturing, and e-commerce interactions. The suite of products and services that EMSes offer includes: Manufacturing; Integration of enclosures; Power supplies; Wire and cable; Customer service; and Online customer help desks. Previously, many of the products and services that EMSes offer were provided solely by the functional common core component suppliers. In short, only by learning the lessons of effective supply chain management will the operators and their suppliers be able to navigate safely through the current rough waters that have already swamped so many in the industry. Chapter I Reproduction without permission 5