No Riches From Optical Switches

Most optical switch manufacturers are in a pickle, according to the latest report from the Optical Oracle

December 11, 2001

2 Min Read
No Riches From Optical Switches

Optical switches may have the potential to revolutionize telecom networks in the long run, but right now most optical switch manufacturers are in a bit of a pickle, according to the latest report from the Optical Oracle, Light Reading’s subscription research service.

Called “Switch Hitting: OEO vs OOO," the report identifies different types of optical switch and reviews their market prospects. It then analyses the strengths and weaknesses of the major players by examining their financial figures. The major conclusions are these:

  • Ciena Corp. (Nasdaq: CIEN) is the only company making steady money out of optical switches. Sales of its CoreDirector switch are expected to represent 30 to 35 percent of fourth-quarter revenues, scheduled for announcement on Thursday (Dec 13). That compares with a mere 12 to 15 percent in the previous quarter. However, the report suggests that Ciena’s margins will come under pressure now that competitors are catching up.

  • Corvis Corp. (Nasdaq: CORV) has “alarming” inventory metrics that are “far worse than any competitor,” according to the report. Inventories as a percentage of cost of goods sold in the most recent quarter reached 1,182 percent, nearly twice Sycamore’s 673 percent and more than 10 times the normal mid-90s range achieved by Lucent and Nortel.

  • Lucent Technologies Inc. (NYSE: LU) can’t escape its general problems, which shroud its prospects in the optical switch market with uncertainty..

  • Nortel Networks Corp. (NYSE/Toronto: NT) plans to ship its OPTera Connect HDX optical switch this quarter and says that it’s being “evaluated by customers.” No news yet on who the customers are or whether they like the HDX. All the same, it might give Ciena’s CoreDirector a run for its money. The future of Nortel’s PX photonic switch, derived from its acquisition of Xros, is much less assured.

  • Sycamore Networks Inc. (Nasdaq: SCMR) is running out of time, according to the report, which pours cold water on recent speculation that Sycamore might make an interesting acquisition. Its large cash balance ($728.5 million in the most recent quarter) may be inviting, but this has to be set against Sycamore being “nowhere near break-even profitability.”

  • Tellium Inc. (Nasdaq: TELM) is improving revenues, but this gets short shrift in the report, which points to “a myriad of red flags” in the company’s financial figures. This includes “unacceptable” inventory metrics and operating cash flow that was not only negative to the tune of $58.3 million in the first nine months of 2001 but was also worse than the comparable year-ago figures. “A very narrow customer base and a lack of profitability exacerbate the aforementioned concerns,” the report adds.— Peter Heywood, Founding Editor, Light Reading

    Editor's Note: Light Reading is not affiliated with Oracle Corporation.

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