Why Should Sycamore Still Be Around?

Implications: 1.      Sycamore has a fiduciary responsibility to its shareholders to take actions that will lead to the supplier making meaningful progress. 2.      Its management cannot just do little more than sit still indefinitely as if the company was a piece of real estate the leadership wants to unload at the most opportunistic time. 3.      Sycamore might have a long wait in Sprint picking up its purchases.

Analysis:  In stating that “[w]e believe that we will continue to experience unpredictability in order flow from [Sprint] in the near-term – Sycamore’s CEO is understating the situation.  Sprint will probably not start buying from Sycamore in a significant manner until the carrier gets bought out – and nobody knows what the timing of that will be.  The optical network is hardly a priority for the service provider and it looks as much to Cisco Systems as possible to deal with its transport needs.  

At the last earnings call conference, one of the industry analysts asked a legitimate question concerning Sycamore – “going forward, what's going to change and what's the time frame?”  He probably should not hold his breath.  The vendor is not especially aggressive in terms of sales.  It is laughable when the CEO asserts:  “When I look at our [new] customer acquisitions…,we believe we're more than holding our own.” It should also be noted that the bulk of its product development seems to be confined only to minor refinements.   

“Significant consolidation among the service providers” is not a convincing excuse at a time when high demand for broadband cross-connects is so obvious.  Until there is new management at the vendor, there will likely continue to be limited progress there.