Only one way out

Crisis-hit Marconi is set to face a tough year ahead with R&D on new technology taking on a crucial element in its bid to survive as an independent company.

But the resources at its disposal are dwarfed by some of the bigger players.

Marconi has only 8% of the world market for network communications systems, and its lack of size matters.

Although it has been expanding its research capability, with new centres opening in Cambridge and in India, its budget for R&D stood at £669m for the year to March 2001 (9.6% of group sales), a figure which the company said last week would be kept in line with revenue growth.

But against a forecast of slow sales, at least until the second half of 2002, the funds available to keep up in the fast-changing telecoms market look tight.

Rival Nortel spent around four times as much as Marconi – $4bn – on R&D during 2000.

But without further expansion, Marconi’s level of technological advantage may be at risk.

Marconi is one of the top six providers of optical transmission systems in the world, in a market (excluding sub-sea cabling) that looks set to double to $54bn by 2004 from its 1999 level. It is essentially technology driven, with growth in the coming 12 months entirely dependent on product launches – and growth beyond that period dependent entirely on current R&D investment.

Within its market, Marconi’s optical technology is regarded as state-of-the-art, and until the recent downturn, has been selling robustly. It achieved 40% like-for-like sales growth last year, including a major network contract for British Telecom. It is also understood to be on the verge of launching a new Asynchronous Transfer Mode (ATM) switch, used to direct network traffic, which it hopes will put it back in front of rivals Alcatel and Nortel in this technology.

Marconi is also still a strong player in terms of the technology supporting Dense Wavelength Division Multiplexing (which allows optical fibres to carry multiple light beams of different colours at the same time), as well as in the field of optical switching to eliminate bottlenecks as the data is converted to electronic signals before reaching recipients.

Last week’s share trading suspension, profits warning and announcement of 4,000 job cuts was followed by a collapse of its share price and the resignation on Friday of chief executive-designate, John Mayo, who was due to step into the role in two weeks’ time.

With shares trading this week at just 112p, Marconi is still exposed as a takeover target.

However, many observers question how attractive it looks to other telecoms groups such as Nortel, Lucent, Alcatel or Siemens, all of which have problems of their own to deal with.

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