They just keep coming
For years, we've heard that consolidation would be a necessary and inevitable step on the optical communications industry's journey to recovery. As this century began, the common wisdom was that there were too many companies trying to make a buck (or a pound or a yen or whatever) in every market segment one could name. Long-haul systems, metro equipment, components, you name it, the space suffered from overpopulation. And while from a vendor's perspective there is no such thing as too many customers, the calls for consolidation even carried to the carrier segment as pundits wailed about "the bandwidth glut."
To some degree, such consolidation has occurred, particularly in the long-haul and metro segments. For the most part, the carnage has claimed startups; while some major systems vendors continue to bleed money (like Ciena) or trip over self-created obstacles (like Nortel Networks), I can't think of a company that was well established at the start of the bubble that hasn't remained on its feet, however barely. We've also seen consolidation in the component end of things. The systems houses for the most part shed their widget divisions, and existing component companies were happy to snap them up. Firms such as Bookham Technology and Avanex took the acquisition road to create enough mass to see themselves through the downturn (they hope). The recent acquisitions by JDS Uniphase of E2O Communications and Finisar of Infineon's fiber optics group indicate this process continues.
So why is it I feel that every time a player disappears from the board, another one (or two) takes its place?
I guess one reason might be that the access space has become the new metro, at least in terms of excitement, "potential," and startups. At the systems end of the equation, this publication has been as vocal as any in touting passive-optical-network (PON) technology for fiber to the premises (FTTP) applications, and we've had plenty of companies to cover. But PONs aren't the only approach. Several companies such as World Wide Packets, Amedia Networks, and Wave7 Optics favor active architectures—and, interestingly, all these companies focus on Ethernet rather than ATM. Speaking of Ethernet, the nearly ratified Ethernet in the First Mile standards have inspired other companies, from established houses like ADVA Optical Networking to startups like Nayna Networks, to offer equipment that supports point-to-point optical approaches for the last mile. (Nayna's equipment also supports Ethernet PON.) According to electronic-component vendors with whom I've spoken, vendors across the access spectrum are investigating ways to add optical line support to traditionally copper-centric access boxes, particularly digital loop carriers and DSLAMs.
And speaking of component vendors, FTTP has caught their eyes as well. On the electronic side, established companies like Motorola/Freescale join younger players like BroadLight, Passave, Teknovus, and Centillium Communications' brand new Optical Business Unit as companies with PON chips in the market. (We'll have a report on what these companies are up to in next month's issue.) Allen Armstrong, program director for communications semiconductors at RHK, agrees with these vendors' sources with whom I've spoken who expect more companies to jump into the fray.
On the optical side, companies around the world are busily coming up with splitters, diplexers, and triplexers for the optical-network terminals that serve as PON customer premises equipment. And several companies, from Broadex in China to NeoPhotonics in the United States, are busily trying to figure out how to replace the bulk optics approach to PON transceivers with a potentially more streamlined architecture based on planar-lightwave-circuit technology. And all that for a PON optical and IC component market that RHK believes won't hit a combined $500 million until 2009.
I could also offer the electronic dispersion compensation space as another area where participants are multiplying like rabbits. However, the point I'm trying to make is that despite the downturn, it sometimes appears that, like matter, the pursuit of opportunity can neither be created nor destroyed. It just gets shifted around—and that's good. The key, as the bubble debacle hopefully taught us, is that a realistic assessment of the opportunity must go hand-in-hand with an equally realistic assessment of the competitive advantage offered by your company's approach.
Yes, there will still be areas where too many companies chase too few contracts or design wins. But this industry needs to remember that you can't assess opportunity the way you do spaghetti—you can't throw money at the wall and hope that it sticks.