Barbarians at the gates

Stephen M. Hardy

Editor in Chief

As some of you may recall from reading my first editorial, I came to Lightwave from a magazine that covers military electronics. I started there in 1988, at the tail end of the military buildup initiated by President Reagan ("The best sales rep we ever had," according to my publisher back then). Life was pretty good for defense contractors then. In fact, it was so good that it seemed every company that could spell "defense" (and a few that couldn`t) opted to give the business a shot. If you had a technology the military might be able to use, that was great; if not, well, you could buy a company already in the field and play with their technology. The defense market quickly became crowded, but there was plenty of money being passed around, so know one cared.

Until, of course, government policy shifted and the money started to evaporate. Almost overnight, military equipment divisions in most of the late arrivals either closed or were sold. Companies merged or fell prey to the acquisitive appetites of the two or three juggernauts with the capital necessary to eliminate competition with their checkbooks. (Is it just me, or are all U.S. defense companies these days owned by either Raytheon or Lockheed Martin?) And magazine editors jumped ship and took advantage of opportunities to cover healthier markets.

With this background in mind, I had an intense feeling of déja vu when I discovered that amp Inc. was preparing to repel boarders in the face of a hostile takeover bid from AlliedSignal (itself a company with ties to defense). As I write this editorial, amp`s board is in the midst of a 10-day study period in which it hopes to develop an appropriate strategy. By the time you read this, much of the drama will likely be over. What won`t be over is the question of whether this skirmishing is an isolated event or whether we`re seeing the start of a free-for-all in optical communications similar to that experienced in the military arena during the `80s.

After all, just as was the case in defense a decade ago, the optical communications market is bobbing happily in a sea of prosperity right now. Money always attracts attention, and high-tech companies looking to expand into new markets will naturally be tempted by the opportunities presented by those hockey-stick growth curves that seem to accompany every discussion about future bandwidth demands these days. Communications in general--and fiber in particular--is about as hot an area as one could find.

Or is it? At about the same time AlliedSignal tightened its coils around amp, ciena announced that it was lowering its revenue expectations for the third quarter. The primary reason appeared to be a late $25 million order. While the company still expected to report about $7 million more in revenue than it did in the same quarter last year, some Wall Street analysts turned their backs on their one-time pet. What interested me in all this was an analysis presented by Current Analysis. The analysis used such phrases as "the current softness of the dwdm market" and highlighted the company`s concern that "the dwdm market may be too small to maintain the recent growth that we have witnessed." A soft, small market for dwdm, supposedly the hottest technology in the optical field? Say it ain`t so!

The lesson from all this is that like any industry--including defense--the optical communications field will have its booms and busts. It`s easy to prematurely give up on a market when it`s flat. It`s also tempting to adopt a naively optimistic view of the forest when the trees seem to be growing money. The companies that are profiting most from today`s current prosperity are the ones that previously had enough foresight and product breadth to wait out the lean years (which may be a forward-thinking reason that mergers and acquisitions are so popular among communications equipment companies today). Knock wood, the current strength in the market will continue for several years to come. But companies with perspective and experience will know how to survive if the communications business takes a sudden turn south.

Just be thankful that our market isn`t controlled by the government. And if either Raytheon or Lockheed Martin knocks on your door, I don`t want to know about it. There`s only so much déja vu this editor can handle.