New performance requirements in the lightwave measurement market
For the last few years, lightwave instrument manufacturers (IMs) have danced a predictable sales two-step. The slow, low-volume first step was taken as the customer's research-and-development labs demanded high-performance measurement engines. That was followed by a faster second step, when the products were transitioned into manufacturing groups for a quick ramp-up in production volumes. This sales model ensured an instrument lifecycle that allowed IMs to more than recoup development costs.
The current explosion in both the telecommunications and the data-communications markets has forced IMs to abandon traditional sales paradigms, however. The new challenge is to provide customers with solutions that keep pace with their fast-changing measurement needs. This sharp increase in demand has many IMs scrambling to keep up-paradigms have to be redrawn and instrument design strategies re-evaluated.
Developing measurement instrumentation is a costly business. Typical measurement customers such as network equipment manufacturers (NEMs) have research and development labs with ample budgets to afford the best performance testing that IMs can provide. The premiums paid for this performance measurement allow IMs to recoup development costs. After the initial return on investment, the NEMs' long product development and manufacturing times almost guaranteed a lengthy and profitable period of instrument sales. Some instruments remained viable in the marketplace for more than 10 years.
As important as winning sales in R&D labs was, the key to a successful instrument hinged on selling into manufacturing environments. Volumes in production are much higher than in development, as NEMs ramp up their testing capabilities to equip multiple manufacturing lines.
Manufacturing also differs from R&D in its key measurement needs. Primarily, the need for the best performance is replaced by a desire for greater cost-efficiency. In manufacturing, money spent on testing directly effects the bottom line. High throughput with acceptable performance is the priority.
In today's booming instrument market, an abbreviated and more challenging instrument cycle is required. In the time-domain market, for example, the gap between the acceptance of 2.5-Gbit/sec (OC-48/STM-16) communication signals and 10-Gbit/sec (OC-192/STM-64) transmission was about seven years. The transition between 10 and 40 Gbits/sec (OC-768/STM-256) will not take more than five years at most.
NEMs quickly transition products from R&D labs to the production floor. While manufacturing remains the mainstay of sales, there is rarely time for a separate evaluation, or optimization, of the prototype production line by manufacturing engineers. This fast product cycle in turn affects IMs; their instrument sales cycles as well as the time for reaching profit goals are shortened. This escalation has left many test-and-measurement companies flat-footed and caused a mismatch between the IMs' and the NEMs' development cycles.
The result is a market oscillation in which demand for new instruments far outstrips the availability of appropriate measurement equipment. Delivery times are currently more critical to customers than instrument sticker price. With customers willing to pay top dollar for solutions, instrument makers have not executed well. If IMs are to supply customers with competitive measurement equipment and still remain successful, new strategies are needed.
To come up with more viable design strategies, a paradigm that accurately describes the current measurement-instrument market is required. One such model is shown in Figure 1. The X-axis represents the "value chain" that exists from the inception of a new communications system-R&D labs, manufacturing, installation, maintenance, and fully functional operation. IMs feed instruments into every step of this value chain.
The Y-axis illustrates the functional layers involved in a communications system. To avoid confusion, this axis is divided into the lower layers of the Open Systems Interconnection telecommunications model. These divisions, however, can be changed to reflect any market view. The Z-axis represents the degree of integration into an automated test system offered by an instrument solution.
Once this model is accepted, a measurement company's portfolio of instruments can be mapped to the market. Mapping a company's offerings can reaffirm market assumptions and identify areas of core competency. Figure 2 delineates a fictional company's standing in the test-and-measurement market. In this example, the IM has focused on physical-layer testing through the maintenance section of the value chain. For this IM, R&D and manufacturing are the major focuses for instrumentation, with installation and maintenance probably covered by lower cost spinoff products. This company also sells integrated systems for R&D and manufacturing groups, but the main offerings remain instruments.
This depiction of a company's product portfolio suggests a simple solution for faster production cycles; IMs should focus on fewer of the model's axes. Instrument companies rushed by the NEMs' pace of development must abandon some of their expansion and innovation plans to concentrate on the rapid advancement of core products. Faced with less time in which to make money, IMs should choose to maximize the market share of their best-selling and most profitable instruments.
Typically, the first axis to be abandoned is the Z-axis, which represents the degree of instrument integration into test systems. Few instrument manufacturers have proven successful in the test-system business, and when a company's resources are reduced, this area is usually the first to feel the effects.
If further consolidation of resources is needed, the choice between the X- and Y-axes is more difficult. Ultimately, it may come down to each company's core competencies. Some companies are devoted to producing the best possible measurement instruments, and these IMs will likely follow the Y-axis with R&D labs as their main customers. These companies tend to be smaller in size and have fewer market offerings. Larger companies will tend to focus on the X-axis, because they are attracted to the larger volumes that the manufacturing and installation-and-maintenance stages offer. Many of these trends have already started to take place in the IM market.
Given that many IMs will follow models similar to the ones outlined above, how will this influence instrument design trends? In the short term, this contraction of resources will lead to less innovation in test methods and more development and refining of existing technology. Currently, most IMs must catch up with existing customer demands.
This trend, however, poses a threat to the long-term health of the test-and-measurement market. Companies that sacrifice innovation for a short-term boost in "to market" will pay the price down the road. It is important that companies are not blinded by the opportunity to increase short-term market share and profits at the cost of their long-term presence.
The first and most fundamental design change on the horizon is the integration of powerful central processing units (CPUs) into all measurement equipment. These CPUs will allow a degree of automation within the stand-alone instrument that was not previously possible. Test applications that can be tailored for fast, cost-efficient, pass/fail testing are now appearing alongside traditional measurement hardware. These applications rely on greater processing power within measurement instruments.
A second change is driven by the inexorable need for lower cost measurements. Future instrument designs must incorporate the ability to make multiple tests with a single device connection. Cleaning and connection times are rapidly becoming a high percentage of overall test times, which is compounded by the increased measurement error that creeps in every time a connector is unhooked. It remains to be seen whether the solution rests in incorporating some sort of switch in front of the device under test or in design instruments that can make more than one type of measurement.
The most pressing need is for closer partnerships between IMs and their key customers. Beta versions of instruments are now being shipped to customers far sooner than in the past. This is an important strategy for a variety of reasons. It allows customers access to cutting-edge measurements sooner than if they were forced to wait for the finished instrument's release.
This, in turn, gives IMs invaluable customer feedback during the design process. It also may provide greater insight into the customer's technology roadmap, allowing for synchronization of test instruments to projected measurement needs. Perhaps, most importantly, it builds customer loyalty in a marketplace where a dearth of cutting-edge instruments has made mercenaries of the largest companies.
This symbiotic relationship will have another benefit for customers. The booming market has not afforded customers such as NEMs the time to fully develop the testing expertise their manufacturing processes require. More and more, NEMs want IMs to not only supply the measurement hardware, but also to provide the knowledge to optimize product testing. Yet, in an industry greatly lacking in standards, there is an absence of consensus on even the most basic of issues.
A fundamental question like "How do I make the best measurement of my dense wavelength-division multiplexing [DWDM] component?" can result in various answers from manufacturers. IMs must therefore effectively propagate measurement knowledge to their customers through well-designed instruments and learning products such as manuals, online "frequently asked questions," and training courses. Companies that successfully meet this expectation will again reap the rewards of customer loyalty.
The telecommunications market will soon be dwarfed by the fast-growing data-communications industry. Much as the advent of DWDM systems in the mid-1990s has revolutionized and fueled the instrument market for the past five years, so the switch to data-communications packet-based networks will again transform instrument design. Companies that have concentrated on getting the best performance from the physical layer will be asked to integrate vertically up the Y-axis of the market model in Figure 1, creating instruments that test both the physical and application layers of a network.
Despite these new challenges, the future of the optical-communication test market looks bright. Companies are experiencing unprecedented growth, and opportunities abound. IMs that fail to realign themselves with their customers, however, will risk diminishing share in a booming market. This realignment must comprise not only the basic improvement in their measurement instruments, but also an expansion into areas of greater service, including training and consulting on the measurements that IMs know so well. If well executed, these changes should lead to a promising future for test-and-measurement equipment manufacturers.
Ali Nooriala is a product manager at Hewlett-Packard's Lightwave Div. (Santa Rosa, CA).