Vendors seek new markets for telecom technologies

Like many subsystems and components vendors, when the optical communications space dried up, Stratos Lightwave (Chicago) attempted to diversify into new markets. Today, Stratos is beginning to sell components and subsystems into the military/aerospace and video broadcast markets, with some success. Similarly, Glimmerglass (Hayward, CA) debuted recently with a MEMS technology perfect for telecommunications, but which the company has adapted to suit a wider variety of applications. As these companies and others have found, diversification is no longer an insurance policy—it's a necessity.

"Anybody who has these capabilities was looking at the size of the telecom market in 2000," says Steve Tebo, director of corporate marketing at Stratos. "Without a doubt, the markets that we are looking at now would have been called niche at best. With the reduction in potential in telecom, at least for the time being, niche looks bigger."

The optical communications spinoff of automotive and electronic interconnect supplier Methode Electronics, Stratos was incorporated in April 2000 and had its initial public offering in June 2000. After the communications market stalled in 2002, Stratos went through some restructuring, opting to focus on optical transceivers and higher-end optical connectors for multifiber and ribbon cable and to get out of semiconductor lasers and photodetectors.

A focus on standardized telecom and enterprise components has helped Stratos enter other industries. Many of the components in military/aerospace and video broadcast, use standardized interfaces and technologies (e.g., small form factors or LC connectors) that are ubiquitous in telecom. "None of this is specialized enough where there is some kind of military-only specifications with it," says Tebo. An early success on the military side for Stratos is a several-million-dollar contract to supply vehicular optical interconnects to General Dynamics UK Ltd. as part of the Bowman battlefield radio program with the British Military of Defense.

Stratos's size in terms of revenue and market capital, compared to larger competitors such as Finisar, may also have enabled more flexibility and less scrutiny from investors when reaching out to other markets. "We have a small R&D staff getting into these accounts and letting these targets in the military and aerospace sector know what our capabilities are, and then with the extra push of having some success in Europe in the military market and knowing how to deal with the military, all those things are helpful," says Tebo.

In October 2003, Stratos released a family of low-profile optical transceivers for harsh environments. The new transceivers feature advanced thermal characteristics, high tolerance to vibration and shock, and all-metal housings. While military and aerospace are the primary markets for the product line, the devices can also be used in industrial applications and oil rigs.

In video broadcast, Stratos has worked on projects with Sony to bring optical conversion to the camera and with Boston's Fenway Park to update its infrastructure for fiber-optic feeds. "By being able to take uncompressed video feed, an optical transceiver still offers the same benefits when they need to send a signal further than with copper or [have] a need for additional bandwidth," says Tebo. Much of the company's activities in the video broadcast arena, however, still involve attending industry trade shows and gathering information.

Perhaps the most significant development at Stratos since its early telecom days occurred last July, when the company announced plans to acquire privately held Sterling Holding Co. (Mesa, AZ), which designs and manufactures RF and microwave interconnect products via its two operating units, Trompeter Electronics and Semflex. The deal is expected to become final in the company's third fiscal quarter 2004.

"There has been no secret to our strategy," says Tebo. "On the copper side of things, Trompeter Electronics is very strong in military and broadcast and this push [into other markets] is forwarded by this merger that we are about to go into, and this has been met with a very positive attitude by our investors.

"I wouldn't say right now that today we could call any one of those sectors profitable," continues Tebo. "because the R&D and the relationship-building, the cost for that is definitely outpacing revenues, but our forecasts are quite positive in those areas. And we are willing to make the investments at this time for the future benefits of that."

One misstep the company may have made in its fervor to reach out to other markets is a lack of communications with its telecom and enterprise customers. Stratos greatly reduced its advertising, then heard from a secondary source that it was rumored the company was getting out of the telecom transceiver business. Stratos responded publicly to the rumor, according to Tebo. "Telecom is still our number one market, and we see that being the case for the foreseeable future," he asserts.

Private company Glimmerglass emerged from stealth mode in late October, unveiling what it calls "transparent connectivity," basically MEMS-based switching architectures that support point-to-point fiber connections between devices. The company is marketing different products based on the same core technology to the defense, intelligence, super-computing, test and measurement, Internet infrastructure, enterprise, video production, and telecom industries.

"Overwhelmingly, point-to-point fiber connections are configured manually with some basic switching put in the network," explains Glimmerglass president and CEO Mark Housely. "And most involve conversions back to the electrical domain—there are a whole host of applications where that kind of conversion is unnecessary and gets in the way of the application." The government is one of the leading drivers of this kind of connectivity, according to Housley, because many "three-letter agencies" generate tons of high-bandwidth data in unusual formats that they want to move over wavelengths.

While transparent connectivity has been the theme of the company since it was founded in March 2000, the application and marketing strategies behind the technology have changed.

Housely, who joined in early 2001, remembers, "The company got financed, and it built a 64-port prototype in nine months. At that point, the bubble was in full [swing], and when I arrived, we were building 1,000×1,000 fabrics. We actually built three working 3-dB-loss systems. There is no market for those today." So in early 2001, Glimmerglass refocused on prototypes with 40- and 80-port counts, which matches the capacity of singlemode fiber.

After shipping products for a little over a year, the company officially announced in October a System 300T fiber connection server, a test and measurement product for R&D and manufacturing companies serving the telecom, data communications, cable, and defense industries. Glimmerglass also introduced the System 300E Layer 1 fiber switch for enterprise customers and the System 300V fiber routing switcher designed for video over fiber applications. All three of these systems feature micro-photonics technology, with a transparent switching architecture called Brilliant Connections and patented control technology called Brilliant Controls.

"There is a lot of fiber that is used to connect all sorts of things. You start with basic intelligence on who has a problem," says Housely. "The applications drive us to find the customers. For example, a lot of campuses do distance learning. Normally, you buy really expensive electrical equipment that costs hundreds and hundreds of thousands of dollars and regenerate the signal. We have a feature called photonic multicasting. You take a single source, feed that into the box, feed that back into our photonic multicasting module, redirect that out to eight sources and now you've got perfectly duplicated video sourced over eight or 16 outputs. Then you find there are a whole series of people who are supporting those industries already with current-type products—the electrical version."

The trick, of course, is making money. Smaller companies may find that the financial benefit of diversification is worth the effort. "In general, when you look at other applications, there are relatively small volumes," says Jeff Montgomery, founder of market analyst ElectroniCast (San Mateo, CA). "If you are an Amp, a Corning, a JDS Uniphase, I can't see those ventures having any impact on their bottom line. In most of these situations, they are getting a few million in revenue."