Iolon and Innovance Deal: Good Omen?
Yesterday's announcement that Iolon Inc. will supply tunable lasers to Innovance Networks may be good news for the market as well as the startups involved (see Iolon Delivers Tunable Laser) .
The agreement calls for Iolon to supply widely tunable (100-channel) lasers for use in Innovance's core optical networking products, set for release next quarter.
The deal is significant on several fronts. It's the first public customer announcement Iolon has made, and the first supplier acknowledgement from Innovance. While neither party will disclose terms, Iolon says it's a long-term, multimillion-dollar contract.
It's also a procurement contract, versus a design win -- the difference being that it involves delivery of widgets rather than just plans to build them. "Design wins indicate a system vendor will design its transponders around our tunable laser," says Saeid Aramideh, Iolon's VP of product management. Iolon's been working with Innovance since July 2001, so there's been plenty of time to move beyond the design phase.
Aramideh says Iolon has 18 more prospective customers in the works, but those will be design wins when they're announced over the next few months.
Iolon also says it will have product announcements at the Optical Fiber Communication Conference and Exhibit (OFC) next month.
Iolon seems eager to show that it's arrived on the optical scene, instead of looking good on the periphery. "We're ramping toward volume and completing our Telcordia compliance. We thought it was a good time to announce the agreement," says Aramideh.
It's good timing for Innovance too, because it fuels that startup's claims about a second-quarter product release. After all, if Innovance is so far beyond the design stage, it's clear it's been busy building its wares.
Innovance eagerly confirms this: "We plan to announce actual product commercial availability in the second quarter, not just a prototype," says Innovance COO James Frodsham. He won't be specific about beta tests or trials but says, "We are quite pleased with our traction with leading carriers. We have tremendous alignment in terms of our architectural vision."
Innovance's vision is of a DWDM system that will enable carriers to set up and tear down wavelengths quickly and easily across the network core. The use of Iolon's Apollo-L tunable laser will help, because it's designed to work in the L-band of wavelengths (1570 to 1620 nm), which is increasingly being deployed for optical gear over the conventional C-band (1520 to 1570 nm) because it supports higher counts of DWDM channels. And higher counts mean systems with larger capacity.
Hang on: Isn't the core network the one hit hardest by the current downturn? Yes and no, says Frodsham.
"The long-haul market is down significantly, and 2002 is shaping up to be tough year," he acknowledges. "But traffic volumes in the core are still growing, and capital spending is still being planned." He says there's been an uptick in RFPs (requests for proposal) that indicate IXCs (interexchange carriers), Innovance's key prospects, are starting to focus on their next moves.
"We see next-generation overbuilds opening up in the back half of this year, with broader movement in 2003," he notes.
Frodsham's confidence is shared by Iolon. "The long-haul market is the worst hit in this downturn, but Innovance will reduce capex and opex for carriers. It's pretty compelling," says Aramideh.
There's more: This past Sunday, the Ottawa Business Journal reported that Innovance is on the verge of announcing a monster round of funding, totalling CN$96 million (US$60 million). Citing sources close to the company, the paper stated that funding was achieved this past fall, but the deal stayed open for several more eager investors before being recently finalized.
Sources at Innovance, including Frodsham, refuse to confirm this report, but rumors of funding have been swirling for months (see Innovance Quietly Raises $17M in Debt and Innovance CEO: Layoff Was a Tuneup). And then as now, analysts say big funding from a range of sources implies that a large customer's waiting in the wings.
Does all this hopeful news indicate that perhaps the worst is over? Not so fast. Even if Innovance has one or more big customers lined up, the largest carriers aren't immune to pulling out of supply agreements these days, even announced ones, as submersion of the deal between Qwest Communications International Inc. (NYSE: Q) and Corvis Corp. (Nasdaq: CORV) recently showed (see Corvis: How Low Can It Go?).
The outlook's also cautious on the components front. In a recent report, JPMorgan H&Q Equity Research says that, while tunable lasers such as Iolon's will be "critical" to next-generation networks, they're still in the growth stage: "While it appears the ultimate growth catalyst for tunable lasers will be their use in dynamically provisionable networks," writes analyst Jeffrey Lipton and colleagues, "large-scale deployments of these networks are likely one or two years out."
— Mary Jander, Senior Editor, Light Reading