I am responding to Arlyn Powell's "Crosstalk" article that appeared in your October 2000 issue (see "Theory and reality don't always jibe," page 136). His article commented on an article I contributed to your July issue (see "Cabling market growth slowing dramatically," page 43), which introduced the idea of cabling-market saturation. Generally, Arlyn's comments are relevant with validity to their observations; however, I would like to clarify some of these comments to provide my assessment of the market-saturation issue. For the sake of brevity in providing the general thesis of the market saturation situation, my article did not cover all of Arlyn's comments.
Our analysis indicates that the total market potential for all Fortune 1000 firms, in all of their facilities, is 10 million nodes. In the 1998 time frame, our tracking of node shipments into Fortune 1000 firms surpassed this amount. This means the market was "filled up," with no more Fortune 1000 nodes needing to be initially cabled. As Arlyn points out, this does not preclude cable upgrades or cable installations in Fortune 1000 new construction.
Nor was it implied that saturation applied to the small-office/home-office (SOHO) market. The smaller firms are still an available market, not having reached the saturation status of the Fortune 1000 firms. In addition, Category 5 unshielded twisted-pair (UTP) cabling happens to be the cable type used in horizontal applications by Fortune 1000 firms, and in all of the other markets as well. Our analysis of the saturation effect included tracking these cables, as they dominate the market; however, the saturation of the market by Category 5 UTP cables impacts all of the other types of high-performance cables (including Category 5E and Category 6) that could be used in horizontal cabling subsystems.
The saturation of the market is independent of the cable type. Therefore, the saturation effect for Fortune 1000 firms applies to all types of copper UTP and fiber-optic cables. I agree with Arlyn's comment that over the past 12 to 18 months we have observed a significant shift of Category 5E and Category 6 cables displacing Category 5 cables in new installations. Our analysis indicates that Category 5 UTP cable growths are small while the other high-performance cable growths are much higher over this time period.
Market saturation for the UTP copper cable market has to be taken in the right context as to its implications to copper-cable manufacturers. As I have stated in numerous presentations on this subject, there is bad news and good news for the cable manufacturers. The bad news is that the high double-digit growths pre-1999 are gone, with future growths projected to be in the single-digit range. The steep incline of cable shipments in the pre-1999 time period is now a relatively flat curve-indicative of saturation. The good news for copper-cable manufacturers is the cable market size at saturation, which is in the 12-billion-foot range. This means that about 12 billion feet of copper cable for horizontal cabling for all markets (including new Fortune 1000, SOHO, and cable upgrades) will be shipped each year over the next five years, for a cumulative total of over 60 billion feet of cable.
In order to maintain this high level of cable shipments, the other markets have to pick up the slack from the Fortune 1000 market. This "slack pick-up" includes cable upgrades, new broadband applications, and SOHO market initial installations. These are all stated in my article. These markets can be viewed as the platform for the high level of cable shipments being sustained, with the Fortune 1000 firms having provided the steep incline to the curve on top of this platform up until 1998.
The analysis in my article only applies to the U.S. market, with international markets generally lagging the U.S. market by two to three years. Therefore, there is still a window of opportunity for the international market before it reaches saturation. The only major development that we have uncovered this year that does not track my initial article's conclusions is the market's resilience in its current-year performance to date. Our pessimistic growth projection for the year, in the low single-digit range, has been replaced by a larger single-digit growth for the year. The reasons for this include unanticipated market developments, such as the general economic boom that is making capital readily available for new construction, along with the emergence of a new high-growth market for cables: the Internet data-center market. We are in the process of analyzing this new Internet data-center market and will provide our findings in a new report to be published early next year.
We still hold to our assessment that the market growth this year will be in the single-digit range, being constrained by the market-saturation effect. Without the Fortune 1000 market saturation, the market would have resumed its historical double-digit growth from its growth falloff in 1999.
Frank Murawski
President, FTM Consulting