BW Online | April 4, 2003 | Tech's Slower March to Market

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APRIL 4, 2003

NEWS ANALYSIS
By Olga Kharif

Tech's Slower March to Market
[Page 2 of 2]

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NO CHOICE. Many other tech stalwarts are finding that their surviving customers don't need product introductions to be as frequent. Networking giant Cisco Systems (CSCO ) used to aggressively target so-called greenfield telecom carriers, which were building networks from scratch and generally took less than six months to approve purchases of Cisco routers. Now, most of these companies are in bankruptcy.

And Cisco's regular customers, such as the Bell operating companies, are taking from a year to 18 months to approve new gear, says Jim Slaby, a Forrester analyst. So most equipment suppliers now release new products once a year instead of every quarter, Slaby adds. Cisco "is introducing new products based on the needs of our customers," says a spokesperson, who declined to comment on the product-introduction schedule.

A similar situation seems to be occurring with PCs. Corporations, which account for a large slice of sales, now seem inclined to upgrade every four years to five years, instead of every three years, says Zhen-Hong Fan, a technology strategist at Merrill Lynch, who points out that the trend is leading to longer product cycles for PC component makers. Market leader Dell won't provide specifics on its rollout schedules, but it insists it has made no "strategic decision" to slow them.

A NEW DANGER. Some companies are stretching out product cycles because financial losses have left them with no choice. Telecom gearmaker Alcatel (ALA ) laid off several thousand of its R&D engineers in 2002. Others have had to cut R&D budgets to stay afloat. No. 2 chipmaker AMD slashed R&D by 19%, to $2.1 billion, this year. Still, it has kept development times more or less stable, thanks to a collaboration with IBM (IBM ), which is helping AMD with manufacturing and knowhow, says Fred Weber, chief technology officer for AMD's computations products group.

The longer product cycles that some companies are adopting could be around for some time -- perhaps another year or two, says Merrill Lynch's Zhen-Hong Fan. And even when tech demand recovers, "it's going to be about essential infrastructure, the run-the-business technology needs," rather than new features, adds Arnie Berman, a tech strategist for investment bank SoundView Technology in Old Greenwich, Conn.

Companies that don't pump out products as often as before face a danger: New competitors could enter their markets, or existing rivals could make up ground. ATI is taking a chance that Nvidia, which says it isn't lengthening its product cycle, will forge ahead in graphics-chip innovation. For now, ATI hopes that most customers won't mind the difference in its release schedule, since it'll continue to offer incremental improvements in existing products every six to nine months.

The trick for companies inclined to cut R&D or lengthen product cycles is to not retreat too far and leave themselves unable to hit their old schedules if a strong tech rebound demands faster introductions. Still, companies that have taken the leap think it was the right move. "There's nothing life-changing for us [like the Internet] in the next three to five years," says PeopleSoft's Gupta. Meanwhile, like so many other tech outfits, PeopleSoft will just have to make the best of a bad situation.

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Kharif covers technology for BusinessWeek Online in Portland, Ore

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