Top 5 Companies to Watch
- Avanex and Bookham Technology
- Cisco Systems
- Wuhan Telecom Devices
- Xponent Photonics
While most observers and industry participants believe the optical communications market has hit bottom, not all agree how long a full recovery will take. The following companies (in no particular order) should provide the strongest indications in the next 12 months—positively or negatively—as far as when and where better times may appear. They also will signal whether the trends that dominated 2003 will remain influential next year.
Huawei, despite having its star eclipsed somewhat by the growing success and visibility of UTStarcom, remains the player to watch as far as Asian systems houses are concerned. Both companies have enjoyed general success in their native China and throughout Asia.
However, Huawei has proved more adept at selling optical communications equipment. According to market analyst RHK, Huawei is the number two Asian systems house in terms of worldwide optical equipment sales. (It trails only Fujitsu.) Having straightened out its intellectual property issues with Cisco Systems, Huawei can once again focus on building upon its sales in Germany, Russia, and France to increase its foothold in Europe and around the world. For example, Huawei has made strides in developing regions such as Africa, Latin America, and the Middle East. Significant optical contract awards in 2003 outside of Asia include deals with Telecom Egypt and Oman's Omantel as well as FREE S.A. in France.
The question for Huawei will be whether it can break into the U.S. market. The company founded a U.S. subsidiary, Futurewei (Plano, TX) in mid-2002. However, the subsidiary has yet to announce a single U.S. customer. The success of Fujitsu in the United States indicates that Asian systems houses can garner U.S. market share. But it won't be easy.
Avanex and Bookham Technology—two companies so often mentioned in the same breath when discussing the future shape of the components market—share a slot on our Top 5 list of companies to watch. Both firms have bulked up through acquisitions—and both now face the crucial task of integrating their new assets into a cohesive whole. The fact observers frequently whispered this year that Bookham was running out of cash illustrates the challenge of supporting a broad new product line in a down market. The subsequent purchase of New Focus gave a much needed boost to Bookham's bank account and provides company chairman Andrew Rickman and president/CEO Georgio Anania with more time to align their forces.
Meanwhile, Walter Alessandrini, chairman, president, and CEO at Avanex, claims he's not worried about cash at the moment. However, he too has integration hurdles to overcome, made all the more difficult by the fact that his two main acquisitions—the components and subsystems assets of Corning and Alcatel—have distinctly different cultures. Judging by appearances at recent trade shows, it seems the folks from Alcatel Optronics will have a much more visible role in the new company structure than their Corning counterparts. And if Avanex makes any other purchases (a transceiver firm?), then that will only add to their to-do list.
As both companies attempt to remake themselves in the image of JDS Uniphase, it will be interesting to see whether this goal remains worthwhile. While several analysts have expressed admiration for the "one-stop shop" approach to the optical components market, vendor representatives at KMI Research's Newport Conference last October suggested that no one company has everything they need. Even management at Avanex and Bookham has to wonder if the rebounding market will support three big companies.
Cisco Systems, already one of our Top 5 systems vendors, could become even bigger in 2004. The fact that next-generation SONET/SDH appears quite capable of staving off extinction at the hands of Ethernet and IP bodes well for Cisco's ONS 15454, which has already found its way into BellSouth's network. The trick now will be to kick-start its metro/edge DWDM products such as the ONS 15200 series, ONS 15327 optical transport platform, and ONS 15540. Of course, long-haul products such as the ONS 15808 DWDM transport system await a revival of what promises to remain a challenging market niche. The company has a relationship with Optical Solutions for the fiber to the premises space and a product line, the ONS 15327, to match.
Outside of the United States, Cisco continues to succeed in China. Of course, the company's leadership position in carrier-grade switch-routers also bodes well.
Wuhan Telecommunications Devices' (WTD) performance should indicate whether China will become a worldwide force in active as well as passive components. Most people perceive the Chinese optical market as a collection of startups; however, WTD began life as a joint venture between Wuhan Research Institute of Posts and Telecommunications and Lasertron back in 1980. The company produced China's first laser diode in 1982 and supplied components for the country's first provincial optical communications trunk in 1986. It lists Siemens as one customer for its products, which include transceivers and transponders as well as WDM transmitter and receiver modules and a line of transmitters aimed at passive optical networks. It also markets transmitter and receiver components.
Xponent Photonics is among the latest wave of startups that promise to provide low-cost wafer-level integration of multiple optical functions into a single device. (What list would be complete without including at least one entry simply because it has a neat technology?) Through a technique it calls "Surface Mount Photonics," Xponent uses flip-chip die bonders to attach surface-emitting light sources directly onto waveguides. The strategy removes the need for lenses and active alignments. Because it supports the use of encapsulants for packaging, the technique also obviates the expense of hermetic approaches. The company's first products are "fiber-ready optical assemblies" (FROAs); a 10-Gbit/sec PIN FROA has begun sampling.
In the future, the company expects to provide completed components in transmitter/receiver optical assembly (TOSA/ROSA) and TO-can packages built with FROAs. Another product could be a diplexer or triplexer, which promises to bring down the price of optical-network terminals. The company's recent $18-million Series C funding round indicates that, in the context of the financial market's shaky faith in optical communications, at least someone believes Xponent is a good bet to survive. ..