It's no surprise that there are a few German companies germinating in the optical access market. Germany is known for the engineering talent to make DWDM technology that allow several disparate applications to simultaneously push data across a single fiber link.

What's more, the access network -- everything connecting a business customer with either the dark fiber it leases or a service provider -- is still showing promise, unlike other optical equipment segments.

More optical CPE (customer premises equipment) shipped in the first half of 2001 ($64.7 million worth) than during all of 2000 ($56 million), according to Infonetics Research Inc. The DWDM portion of the CPE market was $31.7 million during the first half of this year, compared to $32.8 million last year.

Among the companies competing in this space are ADVA AG Optical Networking (Frankfurt: ADV), Controlware GmbH, and Pandatel AG (Frankfurt: PDE). Each company is based in Germany with a U.S. office in New Jersey. Each company is relatively small in size compared to other vendors in this space, such as Nortel Networks Corp. (NYSE/Toronto: NT). The U.S. startup most closely resembling the group appears to be LuxN Inc.. ADVA, founded in 1994, is the gorilla amongst the German access players with 388 employees and $16.1 million in U.S. sales for the first nine months of this year (see ADVA Claims 'Stable' Q3 and BellSouth Goes With ADVA). The company has four different metro DWDM product lines, spanning from the customer premises to the metro core, and it expects more than 30 percent of its sales this year to come from U.S. enterprises and service providers.

More than 80 percent of ADVA's sales comes from its resellers and partners, which include Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), Inrange Technologies Corp. (Nasdaq: INRG), Hitachi Data Systems (HDS), and Storage Technology Corp. (StorageTek) (NYSE: STK). The company also boasts some big carrier customers, including BellSouth Corp. (NYSE: BLS) and Verizon Communications Inc. (NYSE: VZ).

"We migrated from being an enterprise product company to metro core," says Brian McCann, ADVA's chief marketing and strategy officer. "We understand the bandwidth drivers. If you're only in the access space, how do you convince a carrier to buy a standalone access product? They want total solutions."

Begging to differ with McCann is Controlware Communications Systems, a 20-year-old company with 500 employees worldwide, 20 of whom work in the U.S. Controlware, known for its ISDN access and backup systems, recently began selling its optical access products in the U.S., though it hasn't announced any customers for that gear just yet (see Controlware Claims ESCON Enhancement).

"I think that when you've got a company that's been around for 20 years, it makes a customer feel a whole heck of a lot better than potentially working with a startup," says Tim Rubert, CEO of Controlware USA. "We're not going to try to be everything to everybody. We're going to focus on what we do best, and that's the access part of the network."

Pandatel, founded in 1987 under the name Pan Dacom Telekommunikation GmbH, falls somewhere in between Controlware and ADVA (see Pandatel Offers Optical Mux). The company has 158 employees and recently reported that in the first nine months of the year, its sales to North and South America grew to $3.17 million, compared with $2.55 million during the year-ago period. Pandatel was also once in talks with LuxN regarding a storage networking partnership, but those talks never resulted in an agreement, according to LuxN executives.

"We believe that ADVA and LuxN are neck and neck in the growing enterprise DWDM CPE optical equipment space," says Michael Howard, principal analyst and co-founder of Infonetics. "Each is currently doing a few million dollars per quarter in North America."

Cisco's ONS 15327 is doing well, Howard says, bringing in "a little more than ADVA and LuxN combined in North America... Controlware and Pandatel are almost immeasurable in the U.S. and Canada."

In general, access companies say their business seems steadier than that of core equipment companies because their customers see an almost immediate return on investment. The number of next-generation service providers is shrinking, cutting down a potential source of income. RBOCs, however, are now selling more managed services to businesses, which translates to more access gear sales. Influencing this trend is the pressure for the RBOCs to replace falling voice and DSL revenues, the access companies say.

"Third-quarter optical equipment numbers are slacking somewhat overall, but it looks like CPE continues to expand as more businesses turn to optical connections for services such as WAN/Internet connection, LAN extension, and storage applications," says Howard.

Ultimately, the prospects for the incoming German access companies depend on whether U.S. enterprise spending snaps back in a hurry. "The problem with the access market is that the only time someone buys your equipment is when they have a customer," says Agnes Imregh, LuxN's vice president of marketing. "That's part of the reason we chose to diversify."

- Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com