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Optical/IP

More Fiber Market Misery

Few sectors surpass the optical fiber market's load of gloom in the current telecom downturn (see Solution for the Fiber Glut: Turn It Off?). With fiber selling for next to nothing, the fight over one of the few valuable assets -- intellectual property rights -- has come center stage.

The OFS division of Furukawa Electric Co. Ltd. announced today that it has filed suit against FiberCore Inc. (Nasdaq: FBCE) for patent infringement on a number of optical fiber technologies, including technologies relating to the reduction of polarization mode dispersion (see OFC Sues FiberCore Over Patents).

”We’re going to be aggressive about protecting what’s ours,” says Olga Schmuklyer, a spokeswoman for OFS.

FiberCore, however, claims that there is no need for the aggressive protection. “We don’t know what they’re talking about,” says Chuck DeLuca, FiberCore’s secretary and managing director for business development in Asia, claiming that the company has yet to be served with any court documents. “As far as we’re concerned, we’re not infringing on anything.”

According to counsel for OFS, the suit was filed today in the United States District Court for the Northern District of Georgia, but FiberCore won’t be served with the papers until Monday or Tuesday.

In light of Furukawa's depressing figures, some observers say that the lawsuit could be the company’s way of getting some quick cash to firm out its balance sheet. Earlier this week, Furukawa revised its earnings forecasts downward for the fiscal year ended March 2003; and it would seem that the OFS part of the business, which the company bought from Lucent Technologies Inc. (NYSE: LU) last year, is much to blame (see Lucent Cuts Deal on Fiber Unit, Did Furukawa Buy a Lucent Lemon? and OFS Drags Down Furukawa). OFS saw its quarterly revenues fall from $78.3 million in the first quarter this year to $61 million this past quarter. Worse, operating profit has dropped more than 40 percent over the last nine months.

And it doesn’t look as if things are going to get better any time soon. In a note on OFS's financials published July 30, analyst Toru Nagai of Morgan Stanley Dean Witter & Co. writes: "[W]e expect optical communications demand to remain in correction for the time being. Given this somewhat less than optimistic outlook, we suggest seeking refuge in other industries."

“This is not about grasping at straws,” Schmuklyer says, insisting that OFS is simply interested in protected what rightfully belongs to it.

Other observers agree that the suit is probably legitimate, saying that Furukawa is just trying to retain as much of OFS’s value as possible. “Furukawa clearly overpaid for OFS,” says an industry analyst who has asked to remain anonymous. “Most of the company’s value is in its patents.”

Judging by recent financial results from other major players in the market, like Corning Inc. (NYSE: GLW) and Pirelli Cables and Systems, OFS isn’t the only fiber vendor struggling.

Last week, Corning, by most accounts the market leader in manufacturing terrestrial optical fiber, reported a 17 percent sequential decline in sales of optical fiber (see Corning: 'We'll Do What It Takes'). This figure represents an ongoing downward trend for Corning: Sales of fiber and cable were $296 million in the fourth quarter of 2001, $255 million in the first quarter of 2002, and $212 million for the most recent quarter. The company has also recently seen its bond rating cut to junk status by three major rating agencies.

In preliminary half-year financial results published last week, Pirelli Cables says demand for fiber has fallen by two thirds from previous levels. "The comparison between the first half of 2001 and the first half of 2002 is between the best period in the history of Telecom Cables and Systems and what is proving to be absolutely the worst," the company's report reads. "[T]he collapse in terms of volume has been accompanied by a sharp downturn in prices." As a result, parent company Pirelli blames its cable division for cutting the overall company's operating income by 50 percent compared with the first half of 2001.

FiberCore, too, has shown poor results, seeing sales cut in half during its first quarter this year. On an interesting note, the company saw one of its board members leave at the beginning of July to become the Vice President of Afghanistan. Is the fiber market really that bad?

The companies themselves are of course trying to calm investors. “Let me emphasize that stock prices are based on short-term realities, not long-term prospects,” James R. Houghton, the chairman and CEO of Corning wrote in a letter to that company’s shareholders today. “I know it is extremely painful to watch your hard-earned investment in Corning stock drop so dramatically in value. I truly appreciate your trust in the company, and I am committed to helping our entire organization stay focused on our bright long-term prospects.”

Other companies are also saying they expect things to pick up soon. "If you step back from the correction of 'irrational exuberance,' you'll see this is a cyclical business that closely tracks the GNP CAGR of 25 to 27 percent," says Janice Haber, VP of systems engineering and marketing at OFS.

She says several factors have made the situation appear worse than it is. First, fear resulting from the overbuild in the long-haul fiber market has worsened the situation by lessening fiber makers' access to capital markets. Also, carriers' tightening finances have resulted in toleration of greater-than-normal utilization rates on networks. Where once carriers would order new fiber when saturation levels reached 70 percent, Haber says they're going to 90 percent utilization, particularly in the metro and access areas.

While most analysts disagree with the vendors, predicting no upturn in sight, some are a bit more optimistic. Although carriers worldwide continue to suffer the reprisals of putting in too much long-haul fiber when the market was flush (see Solution for the Fiber Glut: Turn It Off?), it looks as if some market sources see a growing demand for fiber in metropolitan areas and access networks as a possible revenue balancer.

"Worldwide demand for single- and multimode fiber was negative from 2001 to 2002, but we see the market flat to slightly positive going from 2002 to 2003," says Richard Mack, general manager at KMI Corp., which tracks the fiber market.

Mack says the market correction of the long-haul glut resulted in a 15 percent reduction in demand for terrestrial fiber between the peak year of 2000 and the "market correction" of 2001. Demand fell 10 percent between 2001 and 2002. Still, he says "flurries of activity" -- including installation of more fiber in metro areas, plus a range of fiber-to-the-curb projects worldwide -- could help even out those figures this year.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com and — Eugénie Larson, Reporter, Light Reading
http://www.lightreading.com
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gea 12/4/2012 | 10:00:37 PM
re: More Fiber Market Misery "Worldwide demand for single- and multimode fiber was negative from 2001 to 2002"

Does this mean some companies were tearing fiber out of the ground and selling it back to Furukawa?

What exactly does "negative demand" mean?
let-there-be-light 12/4/2012 | 10:00:36 PM
re: More Fiber Market Misery What does negative demand mean?
...

The TAM (that stands for Total Addressable Market for those of you whose path never crossed market forecasters) is falling so fast in our industry, at this rate we'll soon be crossing the x-axis and hitting negative numbers.

The numbers don't lie, they say, so what does a negative TAM mean? My interpretation is that we'll be paying our customers to take our stuff, which by the way, isn't so far removed from the truth.

I don't know what our blessed analysts were talking about when they spoke about negative demand, though, but it might have been along those lines....

;-(
willywilson 12/4/2012 | 10:00:35 PM
re: More Fiber Market Misery The numbers don't lie, they say, so what does a negative TAM mean?

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What good is an analyst unless he can come up with fancy ways of saying simple things? "Negative TAM" = "The market is shrinking."
willywilson 12/4/2012 | 10:00:35 PM
re: More Fiber Market Misery Our company GCC (GCHC symbol) owns 60% of Unigel.com in the UK & China. They are report a slight reduction of sales in fiber optic gel vrs the past year but nothing dramatic. Unigel has introduced a new product, Unilite, which is a filler for copper wire to offset the recent demand in fiber optic cable. China is stil in infancy and will add millions of kilometes of fibe optic cable in the next 3 to 5 years. http://unigel.com this site will be updated this coming Monday for investors. The UK site is http://unigel.co.uk/about

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Beware! GCHC went public last December at 30 cents a share and now trades for 11 cents a share. With apologies to the Chinese calendar, methinks I smell a rat.
greaterchinacorp 12/4/2012 | 10:00:35 PM
re: More Fiber Market Misery Our company GCC (GCHC symbol) owns 60% of Unigel.com in the UK & China. They are report a slight reduction of sales in fiber optic gel vrs the past year but nothing dramatic. Unigel has introduced a new product, Unilite, which is a filler for copper wire to offset the recent demand in fiber optic cable. China is stil in infancy and will add millions of kilometes of fibe optic cable in the next 3 to 5 years. http://unigel.com this site will be updated this coming Monday for investors. The UK site is http://unigel.co.uk/about
willywilson 12/4/2012 | 10:00:34 PM
re: More Fiber Market Misery If you smell a rat you should check around your immediate area. GCHC did not go public last Dec-get your facts correct beore you open your mouth. If you question GCHC's credibilty-first do our readers a justice and call the NY office at 212-935-0561-speak with Mr. John Allen, COB of GCHC. And if you doubt his credentials then check with George Soros group.

Just because some fool sells 60k shares of the stock at market and price falls to 11 cents means nada. Let us see where GCHC stands after the SEC reports come out in october.

For you not so naive-read the pr coming out next week, then let's talk.


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I went to Yahoo to check on GCHC, and it said the symbol is now GCHC.PK

Is this a "pink sheet" company? Do you have a link to a longer-term price history or stock chart? Was it busted to the pink sheets by the telecom crash?

As for calling the chairman, why would this establish credibility?
greaterchinacorp 12/4/2012 | 10:00:34 PM
re: More Fiber Market Misery If you smell a rat you should check around your immediate area. GCHC did not go public last Dec-get your facts correct beore you open your mouth. If you question GCHC's credibilty-first do our readers a justice and call the NY office at 212-935-0561-speak with Mr. John Allen, COB of GCHC. And if you doubt his credentials then check with George Soros group.

Just because some fool sells 60k shares of the stock at market and price falls to 11 cents means nada. Let us see where GCHC stands after the SEC reports come out in october.

For you not so naive-read the pr coming out next week, then let's talk.
greaterchinacorp 12/4/2012 | 10:00:33 PM
re: More Fiber Market Misery If you need the source for bid/ask price go to pinksheets.com This site also will give you the past SEC filings if you click on sec. The prices are delayed 15 min.

If one wants the live quotes-go to freerealtime.com A little trick there -in case you don't have Level II tracking is to get the quote then on the left hand column click on time/sales-by dong this you are live at the trading floor and it is free. Even though the quote says live-only true live quotes are obtained from above mention "trick".

I don't blame any investor for not trusting "pink" stocks. They are very high risk and the clue to their level of risk is the use of dilution to obtain needed cash. GCHC is one of the VERY few that used the slow-reinvestment method for it's growth. Plus not filing with SEC it's quartelies-the cost is over $100k per issuance. That amount inveted in operations, especially in China, is gigantic.
greaterchinacorp 12/4/2012 | 10:00:33 PM
re: More Fiber Market Misery I will post facts so there is little doubt of sincerity on my part or that of this company.

Go to http://www.turtlesnap.com and click on team-read about John Allen's history. I don't think this man would risk his whole life's character nor submit his friends and family to scandal.

To check on GCHC's history go to wallstreetcity.com and bring up historical prices and old SEC filings.

GCHC went "pink" because they (board of directors) thought the uilding of the company was more important that submitting SEC filings. It had to do with money not operations. Unigel/SUTCO/GCC had an agreement with Chinese to funnel all revs back into plant & expansion til after WTO passage. Now the auditors are compiling the figures to meet GAAP and will file next quarter.

Fact-no insiders have sold any shares in the past 2 years. They own approx. 13mm shares. There has been NO dilution of shares to obtain cash, they used revs and good management skills. The OS is approx.28mm and have over 1700 shareholders.

I hope this helps.
willywilson 12/4/2012 | 10:00:33 PM
re: More Fiber Market Misery For you not so naive-read the pr coming out next week, then let's talk.

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I take it that some good news material to the company's financial outlook will be issued next week? Is this what you are trying to convey to us?
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