Optical/IP Networks

Bookham Claims Integration Milestone

Bookham Technology PLC (Nasdaq: BKHM; London: BHM) appears to be making good on its promise of providing more exciting integrated optical components. The U.K. vendor revealed yesterday that it has delivered an advanced subsystem -- an optical spectrum analysis module (OSAM) with switching input -- to Nortel Networks Corp. (NYSE/Toronto: NT) for evaluation (see Bookham Into DWDM).

The OSAM is designed to provide a much cheaper way of monitoring optical power levels in DWDM systems, says David Gahan, Bookham's director of DWDM products. "It reduces the cost of testing from hundreds of dollars per port to tens of dollars," he claims.

According to Gahan, Nortel's next-generation DWDM systems will make extensive use of optical monitoring, checking wavelengths and powers in multiple locations. And that could become rather expensive. "The best way to get the maximum amount of measurement at the minimum cost is to put in a switch at the front end and look at different places sequentially," he explains. Bookham's OSAM has an 8x1 switch at its front end, which means that one OSAM can replace eight traditional channel monitors.

Beyond the switches, the optical signals feed into Arrayed Waveguide Gratings (AWGs), which break out the different wavelengths. Then the optical power of each channel can be detected individually. Nortel wants to keep the exact details of the number of channels, channel spacing, and so on under wraps for now. Gahan is at liberty to reveal that the device can monitor more than 400 wavelengths in eight fibers.

Two factors -- one technological, one financial -- are significant about Bookham's announcement. On the technology front, it represents a level of integration that few vendors can match right now. "Here we've put three different functions on a chip: switching, demultiplexing, and detecting," Gahan crows. "Our competitors have trouble putting everything on one chip."

Gahan's correct in the sense that so far vendors of integrated switches, such as Lynx Photonic Networks, haven't yet managed to integrate them with other functions (see Look Ma, No Moving Parts!). And companies like JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) and WaveSplitter Technologies Inc. still make different functions on separate chips, then connect them by fiber (see WaveSplitter Gets Dynamic Over DWDM).

It should be pointed out, however, that some vendors are behind in their development simply because they haven't been doing it as long. Kymata Ltd., which is now part of Alcatel Optronics (Nasdaq: ALAO; Paris: CGO.PA), for instance, is in a development agreement with IBM Microelectronics that targets goals similar to Bookham's.

On the financial front, Bookham's continuing relationship with Nortel bodes well for the company's future. "[Nortel] is obviously comfortable with what Bookham's doing to let it make this announcement," says Kevin Slocum, an analyst with Wit Soundview. "My impression is that [the relationship] with Nortel is a little further along than the press release would suggest."

Indeed, Bookham acknowledges that the OSAM has been under development for more than a year and that "Nortel hasn't named anyone else as providing modules to them," according to Gahan.

If the deal with Nortel does go through, that one relationship could result in more revenue for Bookham in 2002 than the firm produced from all of it's customers in 2001, says Slocum. He does note, however, that the significance of such a contract depends heavily on Nortel's ability to start shipping systems into the market again.

Analysts also applaud the fact that the new product is focused on high-margin DWDM equipment. Nortel was previously a big customer of Bookham's low-margin access products. When its contract for those parts ended, it left a big hole in the component maker's revenues (see Bookham's 3Q Revenues Down 69%).

Although a contract award is by no means in the bag, the news has helped Bookham's stock move up a little. In the past couple of days, it's risen 7 percent to close at £1.35 (US$1.97) on the London Stock Exchange today.

— Pauline Rigby, Senior Editor, Light Reading
http://www.lightreading.com Want to know more? This very topic is the subject of a session at Lightspeed Europe,Light Reading’s annual conference, on December 4-6, 2001, in London. Details: Integrated Optics

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