Plenty of scraps for small fish
"Newly formed mega-companies face scrutiny among analysts"—one of the stories that grace our newly redesigned front cover this month—reveals a diversity of opinion on whether the one-stop component shop remains a good idea, or at least on whether companies will have to be large to make serious money when the market completes its turnaround. In my opinion, several factors point to a healthy future for well-positioned companies that don't try to become component superstores.
Certainly the convenience and product quality today's über-companies offer should remain appealing; I'm not about to suggest that manufacturers such as Avanex, Bookham Technology, JDS Uniphase, and Triquint (which has kept a very low profile since it acquired the optical product lines of Agere Systems, but whose potential should not be forgotten) face imminent ruin. However, the flip side of offering a broad product range is that these companies must maintain that range during what remains of the industry's current recession. Avanex is still sorting through its new assets, and one can assume Triquint is doing the same. Meanwhile, JDS and Bookham have trudged through the current economic desert with very thick product catalogs on their backs. While many of us expect the market to show significant signs of life next year, it's not as if optical optimists possess a sterling track record. Even if we're right, the extent of that renewed life and the timing of its arrival remain uncertain. Thus, all four companies face hard decisions going into 2004 as they weigh the resources needed to maintain every item in their expansive product portfolios against the revenues they expect each line to generate. My bet is that some of these mega-companies won't be quite so "mega" at this time next year.
Naturally, the more product lines the big companies drop, the more opportunity appears for smaller players. You can also expect the smaller companies to use each discontinued product line as a counterpoint to the notion that "big companies are more stable than small ones." Big companies may indeed be stable, the lower-tier companies will suggest—but their commitment to certain product lines may not.
Occupation of ceded territory represents only one avenue to success for companies with comparatively narrow product rosters. Low-cost manufacture is another. As Tom Hausken of Strategies Unlimited opines, watch for Asian companies in particular to pursue this route. The higher volumes for a component category become (whatever "high volume" means in this business), the more slippery the slope toward commodity status. And, of course, the most significant differentiator among commodity offerings is price. We can expect large Western companies to combat this by continuing to explore offshore production; however, Asian competitors in general should get the upper hand. Keep in mind as well that comparatively lax intellectual property safeguards may make some components "commodities" before their time.
Of course, technical innovation offers another impetus to prosperity—and innovation knows no geographical limits, so the next great idea could come from anywhere. That includes one of the mega-companies, naturally, but focused development houses that truly are "nimble and innovative" can make a lucrative niche for themselves as well.
Companies such as Avanex, Bookham, JDS, and Triquint will continue to cast long shadows in the optical components market. However, not even the tallest trees block all of the sunlight, and we can expect smaller companies to continue to flourish—once the sun starts shining again.
As you may have discovered by now, we have changed more than a few fonts this month. The magazine's structure now reflects our three main areas of coverage: optical communications technology, the application of that technology, and the industry trends and events that affect the first two areas. That's why the table of contents lists three sections: Technology, Applications, and Industry. Each month, you'll see these three topics reflected in the articles that appear on our front page; those articles will continue to the opening pages of their respective sections.
Our new organization reflects our commitment to delivering news and analysis of optical communications technology, applications, and industry trends in each issue of the magazine. And while the sections are new, you'll find that several of the items within them are not. Technology includes our Standards Watch and Tech Trends columns as well as our product coverage. You'll find WDM Solutions on the first page of the Applications section. Meanwhile, Industry is the new home of our Analyst Corner, People, and Calendar columns and departments. Kevin Slocum, our Wall Street & Finance columnist, has decided to retire his pen to concentrate on his new duties in investment banking at SoundView Technology Group. But you can be sure this column will return in our Industry section in the near future.
Naturally, I hope you'll be pleased with the magazine's new look. I invite you to send me comments at email@example.com.