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Core Optical Startups Chill Out

Light Reading
News Analysis
Light Reading
6/24/2002

No doubt about it: The market for core optical switching and transport is the chilliest of all telecom markets, and some high-profile startups are severely cutting back.

In the past couple of weeks, optical-switch startup Calient Networks Inc. and optical transport company PhotonEx Corp. laid off significant portions of their staff.

Experts in the field largely concur that there is no sign of recovery in these markets for possibly years to come -- putting startups in the position of needing to save cash for as long as possible.

”Our view is that the carriers are not going to spend for all-optical switches nor new ultra-long-haul gear, given the capex pressures as well as the oversupply of bandwidth they're currently facing for at least 18 months,” says Fred Wang, a partner with Trinity Ventures, a venture capital firm in Silicon Valley. “The startups in these spaces are toast if they can't make their current cash last for at least another 18 to 24 months, as they're unlikely to raise more venture money.”

Executives from Calient, which makes an all-optical crossconnect (see Optical Crossconnects), would not reveal exactly how many were cut. But sources say that as many as 100 of its 170 employees were let go last week. PhotonEx, a developer of ultra-long-haul DWDM transport gear, laid off 40 percent of its staff this week, bringing its total headcount down to 60 workers, says Kristin Rauschenbach, president and CEO of the company.

These layoffs, along with layoffs from public optical companies like Ciena Corp. (Nasdaq: CIEN), Corvis Corp. (Nasdaq: CORV), Sycamore Networks Inc. (Nasdaq: SCMR), and possibly Tellium Inc. (Nasdaq: TELM) this week, are clear indications that the optical sector has not hit bottom yet -- and that the core market is clearly the weakest of them all (see Ciena to Merge, Shrink, Corvis Sub to Lay Off, Sycamore Reorgs, Lays Off, Teams Up, and Cuts for Tellium?).

Both Calient and PhotonEx have announced successful trials with overseas carriers, but the uncertainty of the market has forced each to batten down its hatches and wait out the storm.

Calient has publicly announced that its product is being tested by two Japanese carriers. But so far, neither carrier has signed a contract or generated substantial revenue for the startup. Most experts agree that photonic switches will ultimately prevail, because they will be cheaper and more flexible than the current optical/electrical solutions. But the issue seems to be in the timing.

“I think there is a strong consensus that photonic switching will be in networks of the future,” says Mike Matthys, vice president of marketing and channels for Calient. “The real question is when will carriers start deploying it. We don’t know yet. We’re hoping it’s sooner rather than later.”

Simon Leopold, an equities analyst with Merrill Lynch & Co. Inc. agrees that all-optical switching will eventually be the technology of choice in the long run, but he says that in the near future carriers are much more focused on getting as much as they can out of their current Sonet infrastructures at the best price they can.

PhotonEx has developed an ultra-long-haul DWDM transport system that runs at 40 Gbit/s. The company announced just yesterday that it has completed a field trial with Deutsche Telekom AG (NYSE: DT) where it transmitted signals over embedded fiber plant on 40 wavelengths at 40 Gbit/s for a total of 1.6 Tbit/s at a distance of 1000 km without regenerating the signal. Impressive stuff, but CEO Rauschenbach acknowledges that it will be a long time before carriers start deploying this kind of gear. She is hopeful that some will deploy as early as 2003, but she recognizes that most deployments won’t happen until 2004.

So far, Calient has raised nearly $300 million, and PhotonEx has raised $179 million, but it’s clear that they will have to make due with what cash they have left, as the venture market has completely dried up for most optical startups.

PhotonEx had 190 employees in October and is now down to 60 after two rounds of cuts. The company also laid off workers back in January (see PhotonEx Axes Staff ). Rauschenbach says these latest cuts came only after talking to customers about deployment timeframes. She says the company needed to make certain it had enough cash to last through 2004. With these latest cuts it should, she says. The sales and customer support teams were the only two groups not affected by the layoffs.

Calient also says that it has enough cash to wait out the crunch. Matthys says the layoffs came about as the company consolidated some of its hardware development groups. The company currently has three facilities: a hardware facility in Santa Barbara, Calif., a software development team in San Jose, Calif., and a MEMS development group in Ithaca, N.Y. As the company waits for the market to pick up, Matthys says it will also be addressing non-carrier markets, including deals with the U.S. government. It is already working with an unnamed systems integrator to bid on projects.

Merrill Lynch’s Leopold says it’s most likely that these companies will partner with a larger company, be bought, or simply fade away. He predicts that once the economy begins to pick up, bigger companies will acquire smaller ones instead of spending money on research and development.

Even smaller public companies are finding it necessary to partner. The recent Sycamore/Siemens AG (NYSE: SI; Frankfurt: SIE) partnership, which was just announced, is a perfect example (see Sycamore Switches Focus). And there will be others, says Leopold. “In a bear market you hibernate,” he says. “But not everyone, especially startups, will be able to do that.”

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com

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lightshow
lightshow
12/4/2012 | 10:13:28 PM
re: Core Optical Startups Chill Out
Ceyba and Innovance? Can anyone shed some light on how they are doing?
secretIdentity
secretIdentity
12/4/2012 | 10:13:27 PM
re: Core Optical Startups Chill Out
No news is good news... right?
light-headed
light-headed
12/4/2012 | 10:13:27 PM
re: Core Optical Startups Chill Out
i agree... someone else like infinera will come up with some technology that will leapfrog over the existing tech while these guys are waiting for the recovery.
realguy
realguy
12/4/2012 | 10:13:27 PM
re: Core Optical Startups Chill Out
Everybody knows that 2004 forecast for 40G deployment is way too optimistic. The real truth is, this company is dead. The investors know it, and it wonG«÷t be long before their prospect customers will realize it too.
let-there-be-light
let-there-be-light
12/4/2012 | 10:13:26 PM
re: Core Optical Startups Chill Out
....,i>
S. Weasel, G«£But thereG«÷s an enormous amount of growth coming in the need for bandwidth, movies on demand, virtual shoppingG«™lots of bandwidth needed soonG«™why all by itself Porn over the internet alone is a growth market.G«•

D. Pockets G«£WhatG«™Porn !, Weasel my man how could we at Major Tel Co. have missed that growth opportunity in our market forecasts, youG«÷ve saved the day, how soon can we get one of your systems in for trialG«•

Maybe we should rename this once-noble website:

PimpReading


switchrus
switchrus
12/4/2012 | 10:13:26 PM
re: Core Optical Startups Chill Out
G«£Experts in the field largely concur that there is no sign of recovery in these markets for possibly years to come -- putting startups in the position of needing to save cash for as long as possible.G«•

Consider the following marketing pitch taking place at Tel CoG«÷s across the land.

Major Tel Co. owns a fiber backbone coast to coast in US, traffic and revenue on the backbone are flat or falling off a bit. Major Tel Co stock is at a 52 week low.

Mr. S. Weasel from WizzBang Optics, a provider of 40 G optic solutions calls on the director of network development for Mega Tel Co, Mr. D. Pockets.

S. Weasel, G«£We have a new line of boxes that will allow you to pump 1.8 Tb of data over a single fiber, itG«÷s only $50 Million bucks for a box that handles 10 fibers, and will ready for field trials in mumble mumble 6 months, let me show you the Power Point ChartsG«•

D. Pockets, G«£Well Weasel, thatG«÷s all well and good, and those are very nifty Power Point chartsG«™but you see Major Tel Co is in this business to make money, and right now we are not making money enough on our fiber network, our stock price stinks, the BOD is all over us and I donG«÷t want to stick my neck out getting ready for business that just ainG«÷t thereG«•.

S. Weasel, G«£Right you are D, have to make money for your company, well this here set of gear from WizzBang Optics is just the ticket to make money, stuff more of those what do you call themG«™bits down the old pipe, why when your competitors find out you have 40G capability in your network they willG«™G«•

D. Pockets G«£Trimble in fear, laugh their ass off that we spent money when our network was running at 10 percent of capacity with 50 percent of the fiber in our network not lit.G«•

S. Weasel, G«£But thereG«÷s an enormous amount of growth coming in the need for bandwidth, movies on demand, virtual shoppingG«™lots of bandwidth needed soonG«™why all by itself Porn over the internet alone is a growth market.G«•

D. Pockets G«£WhatG«™Porn !, Weasel my man how could we at Major Tel Co. have missed that growth opportunity in our market forecasts, youG«÷ve saved the day, how soon can we get one of your systems in for trialG«•
purna
purna
12/4/2012 | 10:13:12 PM
re: Core Optical Startups Chill Out
light-headed wrote:

"i agree... someone else like infinera will come up with some technology that will leapfrog over the existing tech while these guys are waiting for the recovery."

The leapfrogging question is an interesting one. I have asked that question to many carriers, i.e. do they think that the technology they will deploy in 18 months is technology that is currently becoming available or is it the next big thing still in the labs. I would say that there is a 50/50 split in the answers. The large incumbent vendors are certainly not pumping massive amounts in product innovation and development and it is far from being clear that they will leapfrog anyone. Any opinion on this?

BTW: Infinera seems to be active in the metro and network edge segment (see e.g. www.lightreading.com/document...., whereas Photonex supplies gear for the network core. Infinera is certainly not going to leapfrog Photonex because both companies target different segments.
diag_eng
diag_eng
12/4/2012 | 10:13:11 PM
re: Core Optical Startups Chill Out
I disagree. Nobody is sinking money into R&D for the core over the next 18-24 months at least.

I do agree that PhotonEx, and any other startup (semis included) associated with the core, are in grave danger.

-------------- in response to: -----------------
"i agree... someone else like infinera will come up with some technology that will leapfrog over the existing tech while these guys are waiting for the recovery."
Rockhead
Rockhead
12/4/2012 | 10:11:45 PM
re: Core Optical Startups Chill Out
"Infinera is certainly not going to leapfrog Photonex because both companies target different segments"
------------------

nice try. i believe we call this "whistling by the graveyard".
kokoro
kokoro
12/4/2012 | 10:10:57 PM
re: Core Optical Startups Chill Out
What could we expect from a start-up like PhotonEx with a great publicity campaign, a good number of famous scientific advisors, and no real innovations?

PhotonEx has got nothing new or more compared with other more solid and reliable companies that are struggling to survive themselves!

I let you imagine what's the probability that PhotonEx can really survive with no sales, no revenues, no new ideas... a field trial with more or less established technology is not enough... at least today.

Cheers,
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