Finisar Climbs ROADM Ranks

JDSU (Nasdaq: JDSU; Toronto: JDU) still has the market lead in components for reconfigurable optical add/drop multiplexers (ROADMs), but analysts say Finisar Corp. (Nasdaq: FNSR) is coming up fast.

Revenues at Finisar were up 41 percent from the previous quarter, executives said in reporting second-quarter earnings recently. (See Finisar Reports Q2.) That was a disappointment, even -- Finisar had hoped for 50 percent growth but maxed out its manufacturing capacity.

That growth doesn't come from large ROADM numbers -- ROADM component revenues in Finisar's second quarter were about $15.5 million out of a total $146 million.

JDSU still has the lead share in a fragmented market, but that lead has been eroding for some time, analysts say. And some of them point out Finisar as a contender to watch.

The ROADM component market is awash with competitors: Names include Capella Photonics Inc. , CoAdna Photonics Inc. , Enablence Technologies Inc. (Toronto: ENA), Nistica , NeoPhotonics Corp. (NYSE: NPTN), Oclaro Inc. (Nasdaq: OCLR), and Xtellus Inc. But analysts have been impressed with Finisar's progress in the market. The company's wavelength-selective switch, built of liquid crystals on silicon (LCOS), was developed by startup Engana, which got bought by Optium, which got bought by Finisar. (See Optium to Acquire Engana and Finisar & Optium Challenge JDSU.)

"Finisar has really come from nowhere to take a lot of market with their offering," says Andrew Schmitt, an analyst with Infonetics Research Inc.

JDSU's leading market share has been eroding for some time. Schmitt attributes that to two transitions going on: a move to bigger ROADMs (more than four add/drop ports) and a shift to 50GHz channel spacing rather than 100GHz (a move that doubles the number of wavelengths per fiber).

"Those changes have opened up the market," Schmitt says. "There's been a shift away from JDSU as the WSS [wavelength-selective switch] market started."

Finisar may have gotten a boost particularly from the 50GHz transition, says Ed Zabitsky, an analyst with ACI Research . Finisar's ROADM architecture is software-configurable to arbitrary channel spacings -- meaning systems providers could keep using the same component while making the change to 50GHz spacing. (See OFC: Optium's WSS.)

JDSU says it's already shipping switches for 50GHz ROADMs, but that fact got obscured by a comment on its recent earnings call. JDSU's exact statement was that it's shipping beta samples of new 50GHz ROADMs, a model that's due to ship in the March quarter.

"There seems to be this misperception out there that we're not completely ready to ship one," says Craig Iwata, JDSU's manager of corporate marketing. "We shipped our first 50GHz ROADM in 2001 and our first 50GHz WSS in 2004."

JDSU's ROADM sales were disappointing in its third quarter, which ended October 3, due to one customer eating up inventory. But orders were up 30 percent from the previous quarter, an indication that sales were ready to perk back up.

As for Finisar's software-reconfigurable channel spacing, JDSU remains unimpressed.

"That's something we don't have roadmapped out, because we don't see that as a necessity," Iwata says. "How many times is a service provider going to take a network that's 100GHz and switch it over to 50GHz? We don't think we're losing any traction. If we did, we'd be doing something."

— Craig Matsumoto, West Coast Editor, Light Reading