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2001 Top Ten: Components

Light Reading
News Analysis
Light Reading

A holiday bonus from the staff of Light Reading!

As 2001 draws to a close, Light Reading will be presenting some “Top 10” lists of things to remember this year by – covering everything from leaps forward in telecom technology to notable financial flops, as well as classic quotes and particularly snide and/or boneheaded remarks from our message boards and newsletters.

Our first list covers developments in the components market, in what we consider their approximate order of significance. Much of it's pretty gloomy (it's been a rough year), but important technology developments are still happening out there.

No. 10: Photonic crystals.

While the optical components industry has been in crisis this year, research into tomorrow's technologies has been roaring ahead. It's tough to pick out one particular development for a special mention, but what gets the geeks in Light Reading particularly excited is the work on incredibly tiny devices in crystal structures. This moves optics into a strange netherworld where the usual rules governing reflection and diffraction and ray tracing no longer apply. The hope is that it will sidestep the current difficulties of having to use different materials to make different types of device.

A startup working in this field, NanoOpto Corp., recently got the backing of some heavyweight VCs (see NanoOpto Thinks Small). Another startup, Denmark's Micro Managed Photons A/S , is doing similar things with thin gold films. Researchers also reported some significant advances in this field during 2001.

See: The Hole Thing, Twisty Crystal, and ECOC: Pick of the Papers.

No 9: Switching fabric blows hot and cold.

No. 8: Transponders get smart.

A bunch of companies brought out transponders this year that incorporate lots of electronics. As a result, the same module can be used for different types of traffic, such as OC192 Sonet, gigabit Ethernet, or 10-Gbit/s Ethernet. Its health can also be constantly monitored. Companies with products in this field include Agere, Intel Corp. (Nasdaq: INTC), Hitachi Ltd. (NYSE: HIT; Paris: PHA), JDSU, Network Elements Inc., Optillion AB, and Optium Corp.

See: Kalkhoven Opts for Optium and Startup Simplifies Line Cards.

No. 7: Amplifier advances.

Two developments are worthy of particular note:

No. 6: Integrated optics.

In the past year a few companies have moved closer to optical networking's Holy Grail of making complete photonic systems on a chip. They include:

No. 5: Agere's IPO.

Lucent’s microelectronics division had hoped to stage one of the biggest public flotations ever. In the end, it raised less than half the hoped-for amount, $3.6 billion, squeaking through the IPO gate just as it was closing.

See: Agere Aims for $8.5 Billion IPO and Agere's Fistful of Dollars.

No. 4: Massive lay-offs.

These included 25 percent of the workforce at Agere Systems (NYSE: AGR), 30 percent at Corning Inc. (NYSE: GLW), 43 percent at New Focus Inc. (Nasdaq: NUFO), 52 percent at Nortel, 56 percent at Avanex Corp. (Nasdaq: AVNX), and 60 percent at JDSU.

See: Grim Reaping: A Downturn Tally.

No. 3: Massive write-offs.

Cisco Systems Inc. (Nasdaq: CSCO) rocked the optical networking industry last April when it wrote off $2.5 billion in inventory, most of it classified as worthless "raw materials," which probably means components (see Ripples Spread From Cisco Write-Off ). Less than six months previously, Cisco had been suffering from the opposite problem – a shortage of components (see Cisco's Optical Customers Face Delays and Volpi Downplays Cisco Concerns).

Similarly, Nortel was pumping billions of dollars into ramping up its component manufacturing capacity 18 months ago (see Nortel Creates Optical Components Unit and Nortel to Double Production Capacity). This year, everything has swung into reverse, culminating in a fire sale of 20,000 lots of unwanted components early this month (see Nortel Fire Sale).

No. 2: Company valuations nose dive.

A memorable moment happened just this week, when Marconi PLC (Nasdaq/London: MONI) sold its components division to Bookham Technology PLC (Nasdaq: BKHM; London: BHM) for stock worth a mere $29 million (see Bookham Gets a Bargain). To put this into perspective, the deal works out at $58,000 per Marconi employee. When Nortel Networks Corp. (NYSE/Toronto: NT) bought Xros, an optical switch startup, in March 2000, it handed over stock worth $36 million per person (see Nortel Buys a Monster Crossconnect).

No. 1: JDS Uniphase loses $50.6 billion.

Announced on July 26 and put into perspective in a note from an investment banker as follows:

    Our estimate of the market value of the entire offshore drilling segment is about $35 billion (after accounting for a decline of 30 to 50 percent from most of the companies during the last several months). JDSU just lost $50.6 billion. That is 1.5 times the entire offshore drilling industry and a little over 1/3 the entire market value of the oilfield drilling industry.

JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) got into problems by going on a huge acquisition binge, culminating in its merger with SDL.

See: Sizing Up JDSU's Massive Loss, JDSU's Acquisition Hangover, and JDSU Writes Off Billions More.

PS: Kevin Kalkhoven, JDSU's former CEO, got out when the going was good and is now funding a bunch of new startups (see, for instance, Kalkhoven Opts for Optium).

— Peter Heywood, Founding Editor, Light Reading
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12/4/2012 | 7:23:41 PM
re: 2001 Top Ten: Components

One thing that should be noted about off the shelf ICs is that their manufacturers plan to make profit on them. This means that they sell them for a number much greater than the cost of the silicon. This, assumming the ASIC is in volume, leads to a cost disadvantage of off the shelf ICs compared to ASICs. This holds until these devices reach commodity status.

So, the question I have is: Does the availability of off the shelf Silicon make NT and Sycamore more competitive? They may have the box with the right speeds and feeds, but the wrong cost model. It is also much more difficult to differentiate a product if one is using silicon that everyone can buy. In the datacom domain, software is a much bigger factor than it is in these hardcore switching and transport issues.

dietary fiber
12/4/2012 | 7:23:40 PM
re: 2001 Top Ten: Components
One thing that should be noted about off the shelf ICs is that their
manufacturers plan to make profit on them. This means that they sell
them for a number much greater than the cost of the silicon. This,
assumming the ASIC is in volume, leads to a cost disadvantage of off the
shelf ICs compared to ASICs. This holds until these devices reach
commodity status.

The key point of you comment is the volume of the ASIC in question. ASIC/standard IC pricing is very much volume driven. The more units of a chip a company produces, the better the yield gets, and ultimately the lower the price gets.

For a standard IC manufacturer this means that they can reduce the price and at the same time maintain margins. For a big company doing ASICs if they can get enough volume it means that they can reduce the system cost but the volumes need to be significant.

Don't forget that in low volumes the cost of the ASIC have to factor in the development cost, test cost, etc. For a really big and complex ASIC this can be a very large (10s of millions of dollars or more) amount of money.

As an example, up until a few years ago everyone made there own framers and MACs. Not anymore.

Even in a hardcore transport box, a lot of the value add is still in the S/W so off the shelf H/W, assuming it does the right thing, is always the best way to go.

You generally only want to do your own ASIC if there is nothing even close in the commercial market place.
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