A Cyclical Play on the IP Network

I’ve written a number of pieces about the companies that control the ever rising amount of data zooming around the internet, specifically Akamai (AKAM) and F5 Networks (FFIV) as they are the critical traffic cops at the most crowded junctures of the networks.

At some point though, no level of sophisticated software can make up for a potential lack of "bandwidth," be it in the core, the edge, or the access portion of the web. Carriers have not had to deal with such a problem so far because the overspending of the bubble years had created overcapacity as far as the eye could see. But things just might be beginning to change, and if/once they do, it may resurrect enthusiasm for companies that have languished at the bottom of the network barrel for years.

Triggers For This Potential Change

First is the rapid adoption of Fiber To The Premises (FTTP), thanks to the massive marketing push of the major carriers, Verizon (VZ), Bell South (BLS) and AT&T (T). The fact that VZ is beginning to fade its marketing of DSL suggests that FTTP has reached a point of no return, and will ultimately become the pipe of choice together with cable. If you have a chance to try out an FTTP service do it: it is the equivalent of going from 480i to 1080i High Def. It is really cool.

Second, much as iTunes changed the way music is delivered, something along the same lines is going to change the way high quality / commercial video is delivered, and when those video services are in full swing, their bandwidth demand will swamp what we are seeing right now.

Third, while there is still plenty of dark fiber at the very core of the network, all indications are that “metro networks,” the large systems that reside between the core and the edge are beginning to get crowded.

Given the current environment in the financial markets, chances are that once one or two companies in the space start talking up their business prospects, speculation will spread across all companies like wildfire. Let’s be honest, the Applied Micro’s (AMCC) of the world are still the companies that people are itching to buy, dreaming to sell them out in the triple digits. However, away from the dreams and temporary “BUYBUYBUY” induced price spikes, only a few companies will show bottom line results that will justifiably move the stock.

The obvious question is how to find them.

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