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Optical/IP

Avanex: Is it Worth $10 Billion?

When shares in Avanex Corp, http://www.avanex.com, an optical component startup, were traded on Nasdaq for the first time last Friday (Feb 4), they shot up to $172 by close of business - more than four times the $36 price of its IPO the day before.

On paper, that means that Avanex's market cap is now more than $10 billion, a staggering amount considering that:

- The only customer buying serious quantities of Avanex's products, MCI Worldcom Inc. http://www.wcom.com/, is also an Avanex shareholder. In fact, MCI Worldcom stands to make far more from investing in Avanex than it's spending on the company's products, so its value as a reference customer is questionable to say the least.

- Avanex only started shipping last summer and its revenues for the six months ending Dec 31, 1999 were a mere $10.9 million. In the same period, its losses totaled $19.8 million.

So why the stampede to buy Avanex shares? The answer could be that investors have learned to ignore the details in IPO prospectuses and ride the roller-coaster of Wall Street's infatuation with all things optical.

And they may be right. The future for Avanex could be very bright indeed if the vendor manages to deliver on all its promises. Avanex's developments could be key to carriers boosting the capacity of their fiber backbones by orders of magnitude at the same time as slashing costs and provisioning times. And that could solve an impending crisis for many service providers - coping with the explosion of Internet traffic on their networks.

But can Avanex deliver? The best way of addressing that question is to get a conceptual understanding of its developments. Right now, the product line up is as follows:

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