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Kalkhoven: 'It's the End User, Stupid!'

Light Reading
News Analysis
Light Reading
8/22/2002

SAN JOSE, Calif. -- Optical networking won't exit the doldrums until companies start to consider what technology consumers really want, says Kevin Kalkhoven, the former CEO of JDS Uniphase Corp.

Kalkhoven, speaking today at Opticon 2002, drew some historical parallels to the mainframe computer industry and concluded that the optical networking market, as it is now, is set for about four to five more years of flat revenues.

Just as mainframe computers were large, expensive, manually assembled, and only available to a small base of customers, so too are today's optical networking systems, says Kalkhoven, who resigned from JDSU in May 2000 and has since founded his own venture firm, Kalkhoven, Pettit & Levin Ventures LLC.

In the mainframe business, computing performance increased and prices dropped, which offered more to the large companies that bought mainframes, but left that industry with a stagnant revenue base that remained flat for about 20 years, Kalkhoven says.

In telecom, a similar thing is happening. North American carrier capital spending reached about $90 billion in 2000, Kalkhoven maintains, but has fallen to about $30 billion this year, and most market forecasts project that spending will remain flat for at least four to five more years.

"Why? Because Wall Street will never allow capital expenditures to grow faster than [service provider] revenues again," Kalkhoven says. Within a smaller capital base, the demand for fiber optic components and products is "unlikely" to exceed 10 percent of what carriers will spend on new equipment overall, he maintains.

The solution, of course, is to stimulate new sources of revenue. And that, Kalkhoven suggests, requires a new, hard look at what consumers want from their carriers. While he's not suggesting that anyone go lumbering off with a core router strapped to their back, he is advocating that companies find consumer-oriented uses for optical components in cellular and access technologies.

Kalkhoven suggests users crave high bandwidth connections and would want to connect to some kind of high speed network using cell phones and other devices in the home. He envisions wireless mesh networks linking whole neighborhoods to an optical backbone. In cellular base stations and on digital devices, optical technology could bring more bandwidth and crisper digital displays, he says.

"What I believe very strongly that we will see is a much greater use of the integration of semiconductors and opto-electronics," he says. This will make for lower cost, higher powered computing devices that can use more bandwidth.

Kalkhoven adds that the future will be bright for companies that change, deciding to build what end users want. Those that don't figure it out will die. He cites Digital Equipment Corp. (DEC), a mainframe computer maker as a textbook example. It once employed about 130,000 people and brought in billions in revenues and today it doesn't exist.

"The probability is that there will be a lot more DECs [in the telecom business] than Dells," he says, referring to Dell Computer Corp. (Nasdaq: DELL).

Some in today's audience aren't sure that consumers want a proliferation of more bandwidth-sucking gadgets thrust upon them. "Not everyone wants to be a network node that's always connected," says Michael Genovese, a senior industry analyst at Ciena Corp. (Nasdaq: CIEN). "Is fiber-to-the-navel going to be enough?"

But Kalkhoven says the need for more powerful access and consumer-related technologies is evidenced in the devices people buy today, such as digital cameras and video game consoles. "They want to be able to use them, but they can't without being connected to something," he says.

Overall, a few found Kalkhoven's gaze into computing history and his conclusions were as quenching as a drink from the finger bowl. "This is just further evidence that no one knows what's going to happen next," says Scott Clavenna, president of PointEast Research LLC and director of research at Light Reading. "To say there's growth in cellular and access isn't specific enough."

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com

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BobbyMax
BobbyMax
12/4/2012 | 9:53:35 PM
re: Kalkhoven: 'It's the End User, Stupid!'
Mr. Kalkhoven is as wrong as he could be. The fate of opticalneeds to be determined by the recent actions of Agere and Nortel. Agere has decided to exit out of the optical components business. Out of roughly 850 optical component and optical switching companies about 80% have folded. Other companies will be gone as as they have dried up the VC money.

The sad thing is most of the optical companies were doing exactly the same thing. There was nothing new in their product and technology plans.

Companies would do well if they license the technology from Agere.
gzkom
gzkom
12/4/2012 | 9:53:27 PM
re: Kalkhoven: 'It's the End User, Stupid!'
First thing first.

One of the topic people is frequently talking G㢠how to make the broadband accessible to more people. People talked about the Găúchicken and eggGăą effects - the lack of killer applications and the high price of DSL and Cable modem charged by the monopolies. Some are suggesting to establish a nationwide high-speed broadband under the government sponsorship like the Interstate highway system, which I very much agree.

However, there is an issue that maybe fails to catch the publicGăÍs attention, and its solution is extremely easy and may actually help to promote the broadband usage by the general public G㢠the limit on the email attachment file size and storage space provided by all the ISPs to the customers. We pay $10 - $50 with an average about $25/month for access to the Internet. With the bandwidth dirt cheap and hard disk price approaching 1000 MByte/Dollar, the customers are only allowed to transfer email files not beyond 1 MByte to 10 MByte, and on average about $2 Mbytes. When the incoming and outgoing email file sizes are larger than the limit, some ISPs including MSN.com, which has a limit of 2MB, simply discard the mail even without the sender and recipient's knowledge.

When a digital photo easily gets to the size of 1-5 Mbytes, and a piece of MP3 music averaged about 3-5 Mbytes, it is not that hard to imagine how frustrated we get by the limit. Here we are even not mentioning about video G㢠which easily gets to GByte in length.

So in order to push the demand to broadband and optical, all the ISPs vendors should increase the email file size and storage space 20 G㢠50 folds to at least about 100 Mbytes - a small cost to the ISPs, but it not only benefits the consumers, but also the entire high-tech industry and ISPs themselves.
Nomoredemo
Nomoredemo
12/4/2012 | 9:53:27 PM
re: Kalkhoven: 'It's the End User, Stupid!'
According to the Opticon program you were suppose to present the top 10 start up! could we have the list..
gladysnight
gladysnight
12/4/2012 | 9:53:22 PM
re: Kalkhoven: 'It's the End User, Stupid!'
Well, this guy's a genius.

Hope he gets past page one of his new economics textbook .. .. ..
Scott Raynovich
Scott Raynovich
12/4/2012 | 9:53:21 PM
re: Kalkhoven: 'It's the End User, Stupid!'
The Top Ten at Opticon was a sneak preview for Opticon attendees only. In fact, attendees got a chance to influence the list but giving feedback and critiquing our selections. The new list will be out soon.

--Scott
dave@dwdmr.com
[email protected]
12/4/2012 | 9:53:14 PM
re: Kalkhoven: 'It's the End User, Stupid!'
Scott

I admire your tenacity and ability to withstand pain, abuse and derision.

Were you a masochist in a previous life?

Best wishes

Dave

PS 6 months ago you thought my views on Intel becoming the 800LB Gorilla of Telecomms was off the wall. Still think so now?
Scott Raynovich
Scott Raynovich
12/4/2012 | 9:53:13 PM
re: Kalkhoven: 'It's the End User, Stupid!'
>I admire your tenacity and ability to withstand >pain, abuse and derision.

>Were you a masochist in a previous life?

Actually, it's not a masochistic exercise, it was quite fun. We enjoy debate and discussion, and had a good one.

Also, I'd like to note it was pleasing to look for a new #1 candidate after our last #1, Unisphere, was acquired by Juniper. After all, that is the end game of the list -- picking the winners.

I'm not sure if I used the phrase "off the wall" to describe your ideas, but as far as Intel in Telecom, that story is unfinished. Intel has been trying to break into the communications chip market for years, with only limited success. They are still largely a consumer chip company.
lightreader
lightreader
12/4/2012 | 9:53:13 PM
re: Kalkhoven: 'It's the End User, Stupid!'
just as all the "gurus" were wrong going up, they
are going to be wrong now...nobody knows how
things will pan out...the reality will be bits
and pieces of what they are saying, no slam-dunk
dead-on projections...anyone who buys into any
more "predictions" is a fool....
wilecoyote
wilecoyote
12/4/2012 | 9:53:11 PM
re: Kalkhoven: 'It's the End User, Stupid!'
Scotty, how can you say Intel has only had limited success? They practically own the NIC business now and overall, they do about $1.5-2 B in revenues, more than Agere, BRCM, AMCC, Vitesse, PMC-Sierra, etc.

I would say Intel is a serious force in communications, and will be more of one going forward. CSCO is looking at Intel now that they've ruled out Silicon Access, almost exclusively for around 4-5 major platforms (this is second hand information so I'm not sure it's accurate). Yes, for NPs.
rs50terra
rs50terra
12/4/2012 | 9:53:10 PM
re: Kalkhoven: 'It's the End User, Stupid!'
Scott,

How many people stayed till Friday 12:00 PM to choose the 'top 10'?
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