Alloptic, Salira Close to New Funds

Ethernet-PON equipment makers expect big funding within weeks, reflecting solid progress. Who's buying?

February 14, 2003

4 Min Read
Alloptic, Salira Close to New Funds

Two vendors of Ethernet-based passive optical network (EPON) gear say 2003 is looking good -- if you know where to look.

Alloptic Inc. and Salira Optical Network Systems Inc., the only remaining players with significant "mindshare" in the EPON market, both anticipate new funding, based on solid prospects.

While neither firm has made an announcement, Alloptic CEO Michael Moone says the company expects to close a Series D round of funding for "north of $20 million" by the end of February. Salira spokesman Steve Elich says his company expects to close on about $15 million in Series C funding by mid-March.

In both cases, it's not so much the amount that impresses as the fact that VCs are willing to back Ethernet-based PON technology at a time when PON prospects look to be underwater.

EPONs are an offshoot of PON access, a technique in which passive splitters are used to divvy optical bandwidth among multiple endpoints, reducing the need for extra fiber links (see Optical Access Startups: Roll Call, page 3). So far, the use of PONs in general, most of which are based on Asynchronous Transfer Mode (ATM) technology, has been minimal compared with, say, DSL access. Ethernet PONs, which purport to exceed the 622-Mbit/s limits of ATM-based PONs, seemed to be suffering the same fate.

The vendors, however, insist things are looking up. "This year the tide will turn," says Elich. He contends Salira sees lots of activity worldwide, particularly in China -- enough to be confident about the company's future.

Indeed, Salira's made a big investment in the Chinese market, opening an office there and throwing considerable publicity behind its efforts in the country (see Chinese Ministry OKs Salira). While there are no customers yet -- so far, Salira's announced just one customer (see Salira Ships EPON Platform) -- one of Salira's backers sees the China connection as a winning factor.

Eric Buatois, managing director at Sofinnova Ventures Inc., writes in an email that 50 percent of telecom spending in China goes to access, and the majority of access money goes to fiber. The Chinese carriers have decided to go EPON, he says, and Salira has won several pilots that are rapidly becoming commercial applications. To a query on the strength of the China market for EPONs, he writes: "You must be kidding."

Alloptic also sees a rosy future, despite the telecom downturn. "Things are definitely picking up," says CEO Moone. The company has won business in China through a partnership with Pirelli Cables and Systems. Stateside, it continues to see traction among rural and alternative LECs (see Alloptic Wins FTTx Deal).

Moone says Alloptic should double its revenues this quarter over last, and for 2004 he expects to see revenue growth as high as "a factor of five."

Of course, that's starting from a very small base. Moone concedes the market for PONs of any kind won't make anyone rich just yet. "It's no secret that none of us are profitable," he says.

What's missing from the picture are the U.S. regional Bells, a huge access market that's not buying any PONs in bulk right now -- although that too is said to be changing (see Giga-PON Ships Quietly). "There's not much deployment of PONs right now," says Jason Marcheck, principal analyst at the Confluence Research Group. "No large carriers are doing this."

Without the RBOC market, without volume rollouts, there will be growth, but nothing will really take off, Marcheck says. Further, until the pending regulatory issues are straightened out (see Hanging Fire With the FCC), most PON vendors are holding tight.

In the meantime, Alloptic and Salira seem confident there's just enough opportunity internationally and among alternative North American carriers to support them. Interestingly, another early EPON player, OnePath Networks, has vanished back into satellite equipment maker Foxcom, a company with which it was formerly affiliated.

For both EPON vendors' upcoming funding, existing investors will play leading roles. For Alloptic, that means GMS Capital Partners and Athenian Venture Partners, formerly the Ohio Valley Venture Fund (that's Athens, Ohio). Salira's existing backers include Mobius Venture Capital and Sofinnova.

It's not clear yet how much funding Alloptic has raised, because the company won't say. The last publicly announced round was a puny $3.7 million, raised in January 2000. Salira's total funding will top about $44 million if the deal closes.

— Mary Jander, Senior Editor, Light Reading

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