A mixed-signal environment

May 1, 2003

So, what do you think of the show?" This standard trade-show conversation starter held particular resonance at OFC in March, one of the more significant measuring sticks for the state of the optical communications industry. Given that the vast spaces of the World Congress Center in Atlanta made OFC's 15,000 attendees seem like 15, it may have been tempting to look around the comparatively empty aisles, reply, "Not much," and refer to the industry as much as the exhibition.

Certainly, few of the presenters at the OFC Market Watch seminars offered a lot of near-term hope. In particular, information presented at the investor and analyst session indicated that the market would be doing well to bottom out this year. However, some presenters thought they were beginning to see signs of life. Kevin Slocum, managing director of investment banking at SoundView Technology Group (Greenwich, CT) and author of our monthly Wall Street & Finance column (see page 18), said in an earlier session that conversations with executives of the companies he follows indicate that, for many, business is "bumping along the bottom" and that the majority of companies are confident their costs are under control. He reported that some carriers have begun to talk about growth initiatives and that their suppliers are seeing evidence they may be serious.

Conversations on the show floor reinforced this notion. Pat Edsell, chief executive of Gigabit Optics (Sunnyvale, CA), said activity among his customers was "an order of magnitude better" than it had been six months earlier. Meanwhile, Steve Kukoda, marketing communications manager at Multiplex (South Plainfield, NJ), reported his company has seen an increase in orders for its transponders and transceivers. Ignis Optics (San Jose, CA) recently received an order for 1,000 XFP transceivers.

What are we to make of these conflicting signals? Certainly, no one should believe that the optical communications market will become completely healthy in 2003. But claims that inventories of transceivers and transponders have finally begun to empty appear to be accurate. I also heard that systems vendors have begun to position themselves this year to meet expected growth in carrier capital expenditures next year.

I'm sure some would say such positioning represents wishful thinking on the part of the box vendors. But I believe that, just as most pundits missed forecasting the downturn, recovery will probably come sooner than many expect.

Stephen M. Hardy
Editorial Director and Associate Publisher
[email protected]