Light Reading: Even so, Patrick, when you told your firm, "Hey, let's invest in optical," what kind of response did you get? Optical doesn't exactly have a lucrative reputation.
DiPietro: It does not, but one of the purposes of private equity is to renovate. Look at market valuations of public companies. They do not represent the value of those companies. For crying out loud, every single bit that is generated by a smartphone ends up on the pipes. They're absolutely essential. As Herbert said, you can switch out a BTS or an RNC quite easily. You cannot do that with this stuff.
We do believe in the thesis that the market's over-serviced and nobody's making any money. That has to change, because operators need strong vendors, and we're at the point where that rationalization should be taking place. So, in effect, we've thrown the pebble in the pond.
This [Coriant] isn't a bad thing to start with. It's a company doing, well, a "substantial" revenue. It is very large already, over 200 customers, hundreds of thousands of nodes deployed.
Light Reading: It does seem like a good foundation. I think a lot of people were hoping that two of the large players would somehow get merged, effectively eliminating one.
DiPietro: But you'd have so much product duplication.
Light Reading: That's why it hasn't happened ...
DiPietro: Look at what Alcatel-Lucent did. I can give you a little anecdote. When I was at Nortel, I was responsible for the core network of 3G. Then I left to become a VC. Several years later, Nortel, in their infinite wisdom, sold that to Alcatel-Lucent.
Then, Alcatel-Lucent had three core networks: the original Alcatel RNC -- I'll talk about them as if it's the RNC, but it's the whole core network -- the Lucent RNC and the one they bought from Nortel. They spent three years doing internal bake-offs.
Light Reading:Internal bake-offs. Just internal?
DiPietro: Internal. Not talking to customers. And then the rationalized it and they picked my RNC. Then they took three other years to actually change out all their RNCs in the planet to be that RNC. that was done in 2000. by the time they replaced all the RNCs, four Moore's Laws had elapsed. I mean -- you cannot have that happen, right?
Merz: And you can now see the industry situation, that is to a certain extent different. These guys who don't have 100Gbit/s today -- as soon as the market fully changes to 100Gbit/s, these guys are dead. Which means there are four left.
Huawei is one, but Huawei is blocked in the U.S., which leaves, then, three, which is us, Ciena and ALU. ALU are running minus 20 percent year-over-year growth and is losing 200 million to 300 million euro -- what do you think will happen? They will need to do something, sell whatever. If we take those guys out, it's Ciena and us: only two, which, from my point of view, will be sustainable.
Ciena this year is only $100 million negative, and the stock is going up because [investors are] so happy they've reduced their losses. What do you think would happen if it would bring our company to the stock market, earning money, compared to Ciena? Ciena has a 0.9 [price-to-sales] valuation now and is significantly losing money. We would be profitable with a footprint maybe a bit smaller.