challenges to the manufacturers that must meet both of those design criteria. We now turn our attention to the systems manufacturers. Downloaded from Digital Engineering Library @ McGraw-Hill (www.digitalengineeringlibrary.com) Copyright © 2004 The McGraw-Hill Companies. All rights reserved. Any use is subject to the Terms of Use as given at the website. Telecom Market Segments Chapter 8 The System Manufacturers The system manufacturers-that is, the companies that manufacture complex network systems such as routers, switches, multiplexers, and other devices required in a large network-were hard hit by the down- turn in the telecom industry. Because of their relative position in the food chain-they sell directly to the service providers-they were affected early in the process. As soon as end-user and enterprise spending began to decline in 2000, service providers put their capital expenditure plans on indefinite hold. Unfortunately, the systems manufacturers had based their manufacturing plans on continued service provider spending; so, when the spending stopped, manufacturers were left with a massive overhang of inventory-inventory, by the way, that ages rapidly and quickly becomes unusable. Between 1996 and 2000, total hardware spending grew 16 percent per year, from $24.5 billion in 1996 to $47.5 bil- lion in 2000-an absolutely unsustainable level, as we now know. Between 2000 and 2001, spending fell to its pre-2000 levels, which on the surface appears to be a catastrophic response. Combined spending in 2001 fell roughly 14 percent to $40.1 billion, a significant decline. The bubble burst in 2001 and the industry declined into a multiyear nuclear winter from which the industry is just now thawing. Expansion and contraction of capital-intensive markets like telecom, however, are normal events. What made this particular contraction SO painful was the immense overgrowth and overexpectation that took place prior to the collapse. As we described earlier, service providers were buying network infrastructure at top do