Springtime for fiber optics

The mood at OFC/NFOEC in San Diego was significantly brighter this year. Broadband stimulus awards to FTTH projects have underscored optical communications’ lead in the last mile. Meanwhile, carriers have interest in a new generation of 40- and 100-Gbps optical interfaces on platforms that provide greater wavelength agility. In the enterprise, bandwidth demands continue to grow as well.

Wall Street has taken notice. Company valuations have risen. Finisar’s recent commercial offering was oversubscribed; Calix launched a successful IPO. Some analysts still doubt Ciena’s ability to absorb and leverage its newly acquired Nortel assets, but the company itself is confident and attacking the market aggressively.

In short, the recession—at least as far as revenues and job openings at fiber-optic companies are concerned—appears to be over.

While it may be tempting to just catch their collective breath, companies in this space need to work as hard in this economic springtime as they did to survive the financial winter recently past. Just
because the sun is shining doesn’t mean everyone is going to grow.

Several executives at the show told me that their strategy for success hinged on innovation. They’re right—but not in the way they think. Technology innovation won’t protect this industry from future barren seasons. It’s industry innovation that’s required. For it’s now clear that the rationalization spaces such as the optical components and subsystems niche requires won’t come from the consolidation everyone has demanded. There has been plenty of consolidation over the last several years. Yet, there remain many more companies than your average MBA student will correctly tell you the market can support. That’s because for every company taken off the board, another one gets funded to take its place. Thus, the technological innovation fundamental to this industry prevents it from shrinking to a manageable size.

Therefore, another way must be found to produce margins that won’t disappear the next time the weather turns a little chilly. And this type of innovation must occur quickly. Spring is here, but winter is never far away.

Stephen M. Hardy
Editorial Director and
Associate Publisher
e-mail: stephenh@pennwell.com

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