Submarine networks are making a comeback of sorts, as components vendors report the business is back on the sonar. Like anything else in telecom, the volumes haven't returned to the levels of 2000. The jobs available are "mostly tying small ends together" as opposed to grand buildouts, says Jeff Montgomery, chairman of ElectroniCast Corp.
Still, that's a welcome source of revenue for components firms, which haven't been enjoying the best of times.
"I don't want to characterize it as a booming market, but it's a growing market," says Michael Ricci, senior vice president of the components and modules division at JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU).
Avanex Corp. (Nasdaq: AVNX) is particularly happy, having inherited the Alcatel Optronics (Nasdaq: ALAO; Paris: CGO.PA) submarine division in its acquisition of Alcatel's components business. At OFC/NFOEC early this month, Avanex CEO Jo Major had alluded to a pickup in submarine business, news the company formally announced last week (see Avanex to Buy Alcatel, Corning Units, Components Competition Is Killing, and Avanex to Supply Alcatel ).
"I'd like submarine to be a sizeable part of our revenue," Major says. But despite Alcatel Optronics's good history in submarine, Avanex won't bet too heavily on that market: "Submarine is a market that has some volatility in it, and as such I'd like it to not be the dominant part of our portfolio," he adds.
The good news for Avanex came when Alcatel (NYSE: ALA; Paris: CGEP:PA) announced a flurry of submarine business recently, including:
- Sea-Me-We -- the letters stand for Southeast Asia, Middle East, and Western Europe. Alcatel won a substantial portion of the Sea-Me-We 4 buildout about a year ago, and the company recently picked up the contract to upgrade Sea-Me-We 3 to 10-Gbit/s speeds (see Alcatel to Upgrade Sea-Me-We 3).
- FLAG Telecom Group Ltd.'s (OTC: FLHLQ) Falcon project, connecting Egypt, India, and Hong Kong (see FLAG Picks Alcatel for Subsea Cable)
- Globacom, connecting Nigeria to England with an 8,600km submarine cable (see Alcatel Lands Monster Nigeria Deal)
Besides Alcatel, systems vendors with a stake in undersea networks include Azea Networks Ltd., Fujitsu Ltd. (OTC: FJTSY; Tokyo: 6702), KDDI Corp., NEC Corp. (Nasdaq: NIPNY; Tokyo: 6701), Siemens AG (NYSE: SI; Frankfurt: SIE), Tyco Electronics, and Xtera Communications Inc.
From the component side, Submarine Systems are attractive because they use more expensive parts than their landlubber cousins. The requirements tend towards longer reaches -- thousands of kilometers -- and higher data rates. On top of that, the parts have to be built for performance and reliability. "You don't want to have something fail and have to send a guy down to change a part," Montgomery says.
Only 3,800km worth of submarine systems were deployed in 2003, according to KMI Research. But in a report last year, KMI predicted a jump to 16,800km worth of deployments in 2004 and 19,300km in 2005.
That's still a long way from the 188,600km installed in 2001, though, and the intervening drought has driven prices down for submarine business, just as with every other component sector.
"Because everybody's been without revenue for so long in submarine, it's tough on the pricing side," Major says. "There's a lot of competition, and submarine vendors are working very hard to improve their cost structure." But the situation -- and the margins -- should improve as the business gets back to normal, he says.
On the plus side, anyone still standing has a shot at the market. "The good news is that you don't have to have the latest product out in the market," Montgomery says. "Anybody that's still in the business and has product they were selling back in 1998, 1999, or 2000 -- that product still goes."
— Craig Matsumoto, Senior Editor, Light Reading