The last time I felt moved to write a column, I’d just had a couple of pints of Boddingtons with Kevin Kalkhoven (see Kalkhoven's Five-Year Plan). This time around, inspiration struck while I was browsing our message boards after chomping Thai fish cakes with Steve Georgis, the president and CEO of Network Photonics Inc.
The message that got me going relates to a story we ran earlier this week – BrightLink Brings Home the Bacon. The correspondent suggests that BrightLink Networks Inc. would have been better off sticking to its original idea: selling its innovative switching fabric to OEMs (original equipment manufacturers), rather than using it to build its own switch.
That way, says the message, Brightlink might have been selling its silicon to the likes of Ciena Corp. (Nasdaq: CIEN), Nortel Networks Corp. (NYSE/Toronto: NT), and Sycamore Networks Inc. (Nasdaq: SCMR), rather than struggling to compete with them.
It just so happens that Network Photonics faced a similar issue in its early days and reached the same conclusion as Brightlink – and Georgis told me why, while we were chomping on our fish cakes in the Blue Elephant restaurant in Fulham, London.
Georgis’s comments suggest that component startups are in for a tough time – tougher than those already being experienced by systems startups.
First off, a bit of background. Network Photonics is developing the metro equivalent of the all-optical network idea promoted by Corvis Corp. (Nasdaq: CORV). In other words, its switch does wavelength multiplexing and wavelength switching in the same box. This eliminates the need for separate DWDM gear, which typically bumps up costs a lot and requires a dreaded optical-electrical conversion.
Network Photonics won’t say how it achieves this feat, although Georgis says that, unlike Corvis, he will reveal all, once the patents are watertight. However, it all comes down to a single widget that’s based on MEMS (micro-electro-mechanical systems) technology but is more than just the usual array of tiny tilting mirrors. It also includes some secret stuff that splits light into different wavelengths as well as switching it.
This widget gives Network Photonics its edge, according to Georgis. Most of its potential competitors are buying in MEMS-based switching subsystems from OMM Inc. and integrating them with other off-the-shelf components. They don’t own the fundamental technology themselves: They're just doing systems integration, he contends.
Georgis points out that Ciena got an edge in DWDM by developing its own fiber Bragg gratings. Ciena has achieved the same thing with grooming switches by acquiring Lightera, a startup that was developing its own ASICs (application-specific integrated circuits). That enabled Ciena to jump ahead of Sycamore, which has relied on off-the-shelf switching fabric.
All the same, I asked, why doesn’t Network Photonics follow in OMM’s footsteps? That is, sell its widget to OEMs and avoid competing with the folk indulging in these systems integration projects – which include heavyweights like Alcatel SA (NYSE: ALA; Paris: CGEP:PA) and Siemens AG (NYSE: SI; Frankfurt: SIE).
It all comes down to the sales cycle, according to Georgis. If Network Photonics had tried to sell its widget to OEMs, it wouldn’t have gotten very far until it could ship samples and prove that it could deliver on its promises.
Then it would have had to wait until OEMs designed a system incorporating its widgets. Then it would have to wait another long, long period of time while the OEMs developed their products and got them into lab- and then field-trials with service providers. Then, and only then, the service provider might buy a decent number of switches, resulting in Network Photonics getting a decently sized order.
Georgis reckons this whole process can take one or two years, during which time the component vendor only sees a tiny trickle of revenues from the handful of components it sells OEMs for their prototype switches.
OMM is in this position, Georgis contends. It’s got an agonizing wait ahead of it to see whether any of its customers manage to sell a significant number of optical switches. At least one of them, ilotron Ltd., doesn’t look as though it will make it (see Ilotron Hits Hard Times).
And if OMM faces a worrying future, then imagine what all the other developers of MEMS-based switching subsystems must be thinking – those that haven't even got to the point of shipping commercial products.
Georgis hopes that making his own switch means that Network Photonics will reap its first revenues at least six months earlier than if it had tried to sell subsystems.
That’s consonant with what Brightlink once told me: It shifted its strategy to building a switch, because it was much easier to raise money for such a project.
— Peter Heywood, Founding Editor, Light Reading