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Future Avanex CEO: Outsource it!

ATLANTA -- Supercomm 2001 -- Dumb optical filters and internal manufacturing suck.

That's the way Paul Engle, the COO and future CEO of Avanex Corp. (Nasdaq: AVNX), sees it, though those weren't quite his exact words. He feels that the days of manually assembled, dumb commodity optical parts such as wavelength filters are coming quickly to an end.

"We're done building the freeways with concrete," says Engle. "It's now all about linking those segments of the freeways together. Cost, performance, and efficiency will become the driving theme."

Engle, in fact, has change in mind for his own company, where he will be taking over from Walter Alessandrini as CEO in July.

"A year ago our revenue was in a me-too family of products," says Engle. "We've seen that revenue decline dramatically. But if you take away filters, we are seeing 30 percent growth in next-generation products."

Those products include the new PowerExchanger Smart OADM, which allows optical networks to add and drop wavelengths without conversion into electrical signals. Avanex also has high hopes for its next generation of PowerMux products, which allow more wavelengths to be packed into an optical signal.

Engle sees the key to survival in these tough times in the processes used to build products. For example, he plans to move the company away from internal manufacturing and eventually reduce its dependance on manual labor, although he doesn't see that problem being solved for several years.

"By outsourcing you can get people to share investment," says Engle. "Avanex got started in-house and now we are making a move to the outsourcing model."

Avanex has already outsourced 25 percent of its manufacturing, the rest of which still comes from its own facility in Fremont, Calif. But Engle plans to move most of the manufacturing outside the company over the next year, focusing on using partners in China for labor. Despite talk of optical components being assembled on automated platforms, Engle says those days are still years away and will require new design paradigms.

Engle says that Arrayed Waveguide Gratings (AWGs) and holographic gratings, for example, are the new types of products more suited for automated manufacturing.

"Changing the fundamental technology is how you eliminate people," says Engle. "But for automation, it's still early days. There's going to be manual labor in this business for a while."

In addition to adopting better manufacturing methods, Engle says the optical industry is now learning from its mistakes of the past year.



"It's very analogous to the early semiconductor industry," says Engle, who once worked at Texas Instruments. (NYSE: TXN) before moving to the fiber optic business in the early 90s at British Telecom (BT) (NYSE: BTY). "There's an extreme boom/bust cycle. Over time, there will be cycles that aren't as extreme. This is the first big hit for this industry.

— R. Scott Raynovich, Executive Editor, Light Reading
http://www.lightreading.com For more information on Supercomm 2001, please visit the Light Reading Supercomm 2001 Site.

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