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Communications equipment contracts bring some relief

Communications equipment manufacturers Convergent Networks and Sonus Networks receive new contracts from network operators, even as gear makers continue to worry amid a slowdown in spending.

Communications equipment manufacturers Convergent Networks and Sonus Networks received new contracts from network operators Tuesday, even as gear makers continue to worry amid a slowdown in spending.

Sonus, which makes communications-traffic switching software, or "softswitches," along with voice and data hardware, secured a deal to supply XO Communications with technology. XO, created by the merger of Nextlink Communications and Concentric Network, plans to install Sonus' softswitch technology in North America over the next 18 months. Terms of the deal were not disclosed.

Similarly, Convergent, a maker of high-end switching equipment that enables voice services over high-speed, or "broadband," Internet connections, added BayRing Communications as a customer. Terms of the deal with BayRing, a local phone competitor serving predominately the Northeast, also were not revealed.

Sonus and Convergent are examples of equipment makers that have earned new contracts--and votes of confidence--in spite of the broader slowdown in network investments by communications companies. Many smaller communications carriers have curtailed their spending as venture capital has withered and their stock prices have plummeted.

The deals illustrate that niche equipment markets continue to flourish and may also serve as an indication that the carrier spending downturn is not as dire as some may have initially thought.

"The slowdown in spending is probably overstated," said Hilary Mine, a communications industry analyst at Probe Research. "People overhyped these companies in the good times, and now they're overreacting in the bad times."

Still, carriers are tightening their belts, which is having an impact on equipment makers.

For example, Turnstone Systems, which makes high-speed digital subscriber line (DSL) equipment, warned Wall Street Tuesday that its fourth-quarter sales are expected to be significantly lower than expected due to sluggish sales to carriers. Similarly, Copper Mountain Networks also recently issued a fourth-quarter profit warning.

"There has been a slowdown, so it's going to be harder for many (equipment) companies," Mine said.

But she believes the impact will be more significant for newer equipment upstarts that are just forming or testing unreleased products, not for many of the existing players that already have begun to build a following. "It will hurt those who are just coming up the most," Mine said.