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Khosla: Optical Market's Still Huge

Light Reading
News Analysis
Light Reading
1/18/2001

SAN FRANCISCO -- When you’ve been as successful as Vinod Khosla, it's easy to be optimistic, even in a down market.

Khosla, a venture capital partner at Kleiner Perkins Caufield & Byers, predicts carnage for most of the optical networking startups in existence today. But he still has a rosy outlook on the overall communications market, predicting that true growth hasn’t even started yet and that some companies will have market capitalizations that exceed the current market cap for the entire industry.

Khosla played to a packed house when he delivered the opening address at the CIBC World Markets metro optical networking conference held at the Ritz-Carlton hotel here Wednesday.

Khosla's major concern is the overcrowding of startups in the market, and the general similarity of their business plans.

“It’s hard to tell what’s really going on with some of these companies,” said Khosla, who expects 95 percent of all current networking startups to fail. "There will be more losers than winners."

The rosy part of the picture is that the winners will be divvying up a much larger pie. Enterprise customers, he noted, aren’t slowing down on bandwidth purchases; and even though the capital markets are constraining spending by carriers, Khosla feels that in order to provide better services (and secure more revenues) those carriers will eventually need to buy the equipment that can deliver those features.

“I would argue that we haven’t yet reached the real need for networking,” said Khosla, who's projecting that future rewards may be bigger than anything accomplished to date.

"I suspect we will see the first trillion-dollar market cap come out of this sector."

Of course, for investors (and customers), the trick is picking the companies that will win. And because Khosla has shown he knows how to do that, his advice was hastily scribbled down by many in attendance.

“The basics [for picking winners] has to be fundamentals,” he said, recommending a search for “deep technology or technologists” who can give a company a technological edge. Investors should also look for companies that deliver a “large economic advantage” to their customers, and should be patient if the technological risk involved means the product takes longer to build.

After his speech, Khosla told Light Reading that what really matters in a startup are the people, since business plans always change.

"Some people try to assume they understand the market, and I always say that I don’t. Fundamentally, I bet on people, since no business plan is ever right. What you need are people who can adapt to change. Some can and some can’t."

-- Paul Kapustka, Editor at Large, Light Reading http://www.lightreading.com

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KPSmells
KPSmells
12/4/2012 | 9:00:29 PM
re: Khosla: Optical Market's Still Huge
What a soothsayer khosla is ? I am so impressed with him ! oh my god, none of us knew about optical sector ! give me a fr____ break. this guy is like any other vulture capitalist, too much self marketing less substance. Everyone knows that vulture capitalists have overfunded the optical sector without substance so there is going to be a major fallout now. duh !

Telecom is a big market. Everyone knows that too ! duh ! Tell us something that is not so obvious.

BTW, for those of you who are new to this VC business, this is a standard KP strategy. Every few years one of the partners is heavily marketed in conferences, talks, shows, articles, news media, trade rags,.....remember John Dorr few years ago ! Make'em look like they are the guiding light for the industry. "This is the what is called the deal-flow strategy" in industry terms.
lightreading
lightreading
12/4/2012 | 9:00:27 PM
re: Khosla: Optical Market's Still Huge
I would have to agree. Vinod made some good moves a couple of years ago, but has gotten lazy since - at least with the telecom sector. I don't think he's produced much value or provided any insight to the sector since his work with Cerent/Siara. And he got lucky with Siara.

KP is fat and happy from the good ole days. They started throwing money around and even funded a few optical companies doing the same thing, hoping to play the numbers game. It's unfortunate, as it has weakened their credibility and reputation as a predigree firm. The good ole days are gone and it will be interesting to see how they produce going forward.

I question if Vinod has any more insight than the next guy now as to where the telecom/optical market is going next.

laiks
laiks
12/4/2012 | 9:00:27 PM
re: Khosla: Optical Market's Still Huge
Many 'me-too' optical firms, with incremental economic benefits will have trouble in the market but those that can bring order of magnitude cost reductions and rich functionality will add large economic value. The best technology will win. User demand may well explode as ASPs,ecom,music/software/video sales come on line. More bandwidth drives economic activity which in turn drives bandwidth demand, etc.. The question is will the growth rate taper off, increase or remain the same. My guess is that for the next 3-5 years we will continue to see strong demand for services and thus optical equipment.
gardner
gardner
12/4/2012 | 9:00:23 PM
re: Khosla: Optical Market's Still Huge
Why all the anger? If you really feel he is full of it why do you feel threatened by what he says? If he's a clown then that will be obvious enough in due time. Relax and enjoy the ride.
lightreading
lightreading
12/4/2012 | 9:00:22 PM
re: Khosla: Optical Market's Still Huge
>Why all the anger? If you really feel he is full >of it why do you feel threatened by what he >says? If he's a clown then that will be obvious >enough in due time. Relax and enjoy the ride.

There's no anger and I certainly don't feel threatened. I think he is far from a "clown". I'm simply questioning his characterization by LR, and many others in this space, as an 'optical kingmaker'. There's no doubt he was deserving of that title in the past, but you know what they say: what have you done for me lateley?

right now my answer is: not much. as evidenced by his speech about the obvious, which KPSmells not-so-graciously pointed out.

fishpaul
fishpaul
12/4/2012 | 9:00:20 PM
re: Khosla: Optical Market's Still Huge
I guess above and beyond all this rhetoric the real meaningful question will be , so who will be the leaders in this space come 3-5 years? Thats all I am interested in. We all know that in any race to be king, their will always always be a shakeout. In any industry whether it's retail,manufactoring, ect...

Does anybody have a solid opinion of who the Gorilla's will be, besides possibly JNPR, ?
lightreading
lightreading
12/4/2012 | 9:00:17 PM
re: Khosla: Optical Market's Still Huge
Yes, that is the question.

If you are talking Gorilla's, then you're talking public companies. JNPR makes routers that have optical interfaces, not optical equipment. They will continue to eat into Cisco's share in this sector, rapidly.

Right now I think CIENA is in the best position in optical. Solid customer base, new products (Cyras), and room to grow. Lots of room to grow. They have good, solid technology, a great track record in DWDM. Good product portfolio: long-haul product, metro product (which could use an upgrade), B-DCS with the CoreDirector, and now a next-gen SONET box for the edge. Very well-rounded.

Nortel will continue to grow, but the upside is limited and they will face more competition. Cisco has a window of opportunity in optical, but they are squandering it. If they really wanted to take on Nortel, and if they were smart, they would have bought CIENA before they acquired Cyras. But CSCO is too cheap for that and it's too late now...

Who does that leave? Sycamore.

Steve Saunders
Steve Saunders
12/4/2012 | 9:00:16 PM
re: Khosla: Optical Market's Still Huge
I heard that Gilder has been beating up on Ciena recently. Does anyone know about this?

Opinions?

Seems to run contrary to what most people I've spoken to recently think, which is that Ciena is a hot company -- on a roll.

Steve
KPSmells
KPSmells
12/4/2012 | 9:00:15 PM
re: Khosla: Optical Market's Still Huge
I heard Gilder recently named ONIS as a buy ? anyone ?
Ayman
Ayman
12/4/2012 | 9:00:12 PM
re: Khosla: Optical Market's Still Huge
My openion about most of what is offered now in the market is, Far beyond mature ! We tested several platforms from the big boys in the block including Mr KHosla's previouse " Cerent" now Cisco ONS. They all lack what the Edg concentrator should be ! no real Vlan support, no real 802.17 support . For most Boxes I have seen, Ethernet " and thus enterprise business " is a joke !
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