Market research

Optical Funding: Down but Not Out

Startups targeting ways to optimize existing bandwidth stand to garner the most support from venture capitalists, according to "Valuation Deflation," the latest report from the Optical Oracle, a subscription-based service from Light Reading.

The report quantifies the fall of private-sector valuations over the past several months, as the market's reacted to a "bubble" of overinvestment and inflated expectations. It also tracks the trends that are emerging as the optical networking market proceeds to the next stage of its evolution.

While valuations are a fraction of what they were a year ago (see Valuation Deflation in Startup Land), there's still investment going on. Companies getting money now are those that promise to leverage the optical facilities so many carriers built out in the first flush of optical Internet expansion. Among the hot spots: IP and MPLS edge routing, which will widen the quantity and quality of the services on existing IP networks.

Top Five Capital Draws Also on the boil are access platforms, especially those targeting optical Ethernet connectivity. Content switches, DWDM systems, and next-generation data switches also offer ways to make the best of fiber already installed.

A few other technologies are warming up, the report says, as revenues increase and demand builds -- a trend many experts see evolving over the next two years or so (see Enjoy the Summer). Included in this category are products for IP service aggregation and fiber and hybrid fiber/coax access.

A couple of once-promising technologies have been relegated to the deep freeze until carriers see the need to expand capacity and start spending on network buildouts once again. In cryogenic mode are long-haul networking, where carriers have cut back heavily in response to a lack of immediate demand. Also under the ice is optical switching gear, for which many service providers don't yet see any revenue advantage over existing facilities.

According to the report, the optical component segment is also no place to look for venture funding right now. "The sector is becoming increasingly commoditized," writes our financial analyst, Christopher Bulkey. "There are too many players in the space." As a result, near-term prospects for funded companies are bleak.

The report, available as part of the new subscription service from Light Reading, www.opticaloracle.com, scrutinizes the valuations of a Heinz-worth of private sector startup companies (57, that is), comparing valuations to actual funding in order to draw conclusions about the present state of the optical networking market and its potential for growth in the next two years.

- Mary Jander, Senior Editor, Light Reading

Editor's Note: Light Reading is not affiliated with Oracle Corporation.
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wdog 12/4/2012 | 8:05:34 PM
re: Optical Funding: Down but Not Out Can you please clarify the statement that optical switches are "in the deep freeze". Is the report speaking of OO switches like Calient's, OEO switches like the Ciena CoreDirector, or both.
researcher 12/4/2012 | 8:05:33 PM
re: Optical Funding: Down but Not Out In the graphic that goes with this story, you cite the amounts of funding that various technology categories within the field have received. What's the time period covered? 2001? First quarter only? Second quarter only?

DickW 12/4/2012 | 8:05:32 PM
re: Optical Funding: Down but Not Out What about technologies aimed at eliminating switches ..... where do they fit in this scenario
researcher 12/4/2012 | 8:05:31 PM
re: Optical Funding: Down but Not Out If the idea is to show how funding in this industry has changed since the "bubble" burst, wouldn't it be better to have a chart that shows only what's been funded since that bubble burst? say, since 4Q 2000? If you're showing all funding to date 2000 and 2001, you likely have technologies included that were funded not post-bubble but as part of the bubble.

Scott Raynovich 12/4/2012 | 8:05:31 PM
re: Optical Funding: Down but Not Out large, all-optical backbone switches.

More like Calient than Ciena. Ciena is an aggregation switch, not a core optical switch.
Scott Raynovich 12/4/2012 | 8:05:31 PM
re: Optical Funding: Down but Not Out 2000 & 2001 to date combined
redlightgreenlight 12/4/2012 | 8:05:29 PM
re: Optical Funding: Down but Not Out We've gone from one freaking extreme to the other. Serenity now! Serenity now!
redlightgreenlight 12/4/2012 | 8:05:29 PM
re: Optical Funding: Down but Not Out test
ownstock 12/4/2012 | 8:05:29 PM
re: Optical Funding: Down but Not Out The real, sad truth is it is just less of the same old same old...in other words, nothing has changed in fact, only in degree.

Witness my version of the facts listed on Optical Oracle:

VCs are still investing in / valuing the optical version of dot bombs; based on a lovely combination of:

No product anytime soon: but when we sell, it will be a killer! A must have! Paradigm shift!

No revenues anytime soon: don't get off-track with non-critical things like cash flow! Focus on the plan!

No barriers to competition: But software is so cheap to develop, and so fast to flip! ...and there's all those pretty pictures we can cut into Powerpoint pitches along the way! Let's do an Optical Java-thing!

No experience in real management (project, product, marketing, or anything)...we are engineers and scientists with a plan, my man! ...and besides, we completed our PhD thesis didn't we? Our CEO just got his MBA from Harvard (sorry, should I say Stanford?), man!

Future sales projections that take off like hockey sticks: Forget qualification and field testing, they are going to line up like shoppers at a fire sale! Can't make 'em fast enough!

"Name" BODs and tech advisory boards: let's go get some Nobel prize winners and pay them a lot of options...their experience in the lab is really relevant, man!

Three year plan to develop the first product which will only require the telecoms to re-architect their whole system to put into place: but it will be worth it to them! It's the next big thing! Metro market....did I say metro...big, ooohhh, really big...did I say Metro?

Vertical integration of "everything" in order to meet the schedule and cost bogey: we can do it easier and cheaper inside! No really, we were not lying about the true costs....really!

Yes, our business model is amazingly complex, but that's our barrier to competition, man!

This is by no means a complete list...

I can forgive the naive PhDs with a business plan and a dream. But it's really scary to have the BULK of so-called professional investors out there be so STUPID!

Have to pity the poor start-up with a simple, highly focussed business model, near term revenues, strong IP, avid customers...they get are getting squat valuations...

roomyroom 12/4/2012 | 8:05:27 PM
re: Optical Funding: Down but Not Out
not to mention the big problems with
these guys have toimplement
their waveJunction arch.
they are need at least double the
number of transponders simply
to keep the SNR to acceptable
levels within the box!
Their cool architecture also
needs to some very expensive
Not sure if anyone really want to
buy such experiments
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