Optical components

Gilder's All-Optical Odyssey

SAN DIEGO -- OFC/NFOEC -- Hey, you know what caused the optical bubble burst circa 2002? Deflation.

Deflation of the dollar, that is. That's how George Gilder began the closing keynote speech at yesterday's OSA Executive Forum. He then went on to urge the optical components industry to think bigger -- beyond the constraints of what Cisco Systems Inc. (Nasdaq: CSCO) or Alcatel-Lucent (NYSE: ALU) wants -- and practically sounded a call to war against Infinera Corp. (Nasdaq: INFN) for desecrating the all-optical dream.

It was a busy half hour.

Gilder, moderator of the Gilder Telecosm Forum and chairman of Gilder Cremers Fund LP, is a technology pundit whose blessing has been known to send stocks skyward. Gilder was optical's biggest fan during the dotcom boom, flagging companies like Avanex Corp. (Nasdaq: AVNX) and Corvis for greatness. (See Optical Death Greatly Exaggerated, Avanex (AVNX), Gilder Backs Corvis, and Gilder's Congresscosm.)

Gilder has admitted he made some regrettable calls as the downturn started, but he clearly still believes in an all-optical future.

But let's start with the deflation theory.

"What really caused this crash was a deflation in the 1990s," Gilder said. "The value of the dollar against all commodities and against gold increased by about 30 percent over a period of three years, and this was the very time that all the telecom companies, all the communications companies, were incurring tremendous debt in order to build out the Internet."

And debt holders get pummeled when deflation comes around. "Anybody who had debt convertible into dollars was crushed during this period by the deflation that occurred, and this is what brought down a thousand telecom companies, essentially, and really transformed the picture of the industry."

He might have a point, but most observers tend to think the overwhelming number of companies getting high valuations -- sometimes without revenues to show for it -- had something to do with it, too.

Gilder still believes in optical and is still in love with the idea that the Internet could scale immensely by taking DWDM to extreme numbers of wavelengths per fiber -- 14,000 being a number he cited from some optical research.

But there's been a bump in the road to an all-optical network.

"Instead, we have Infinera," Gilder said. "Now, I am very impressed by Infinera and what they accomplished, but it's completely contrary to the paradigm that I've been expounding, and it's completely contrary to the optical paradigm."

Infinera's optical transport system relies on translating optical signals to electrical form at every node -- meaning, it's not all-optical. (See Infinera Declares WDM War.)

Infinera's chief marketing officer David Welch, who'd spoken earlier at the conference, happened to be out of the room for this part of Gilder's talk. After hearing a paraphrased version, Welch regretted not being around at the time.

What's really needed, Gilder said, is some "wild frontier" thinking, brash next-generation ideas to feed what he called the coming "exaflood" of data, driven by massive amounts of videoconferencing and the coming generation of realistic three-dimensional virtual worlds. (The term derives from "exabyte," or 1018 bytes.)

"The degrees of freedom for invention in optics are as great as ever," Gilder said. "Optics is still an open frontier, and this means that component companies have got to be systems companies. They have got to identify the potential for their components for transforming systems. If they control their business by trying to fit into spots defined by Cisco and Alcatel, they're going to stifle the evolution."

(Of course, that's just what Infinera did. Gilder noted as much but added that Infinera's network vision was "sub-optimal.")

Asked who's going to fund these "wild frontier" ideas, Gilder noted that he himself would step up, being a partner in a venture fund now. ("I decided I've done enough newsletters.") Beyond that, he seemed to expect the glory of optics to simply overcome other factors. "True innovations do create their own markets. That's what I'm looking for as an investor."

Asked whether other VCs burned by the last optical bubble would agree, Gilder went into a rant against global warming theorists, noting that other VCs were too busy funding solar-power initiatives that could only end in disaster. "As long as people think CO2 is a pollutant, they're going to do tremendously stupid things and leave lots of opportunities for those of us who realize this is just a passing fad."

— Craig Matsumoto, West Coast Editor, Light Reading

Scott Raynovich 12/5/2012 | 3:46:56 PM
re: Gilder's All-Optical Odyssey That's the dumbest thing I've ever heard. The dollar deflated AFTER the market crash, because of the ensuing economic weakness, money printing, and aggressive rate-cutting by the fed.

Telecom was plagued by oversupply and a collapse of artificial demand created by bubble-chasing investors who overbuilt just about everything.

It's amazing that Gilder still has the following that he does, when he's so often wrong.

Nearly every optical and storage company he picked as a winner, lost.

His own company nearly went bankrupt.

He failed to see the telecom crash, even tho he's allegedly a telecom "expert."

Why does he still have credibility?
baileyshbr 12/5/2012 | 3:46:55 PM
re: Gilder's All-Optical Odyssey He is just a snake oil salesman, not a telecom expert. I can't for the life of me understand why he has any credibility. Who is paying him for advice?

Now that he provides funding, I would like to see where he is putting his money and also the return on those investments. Maybe his mind will become clearer when there is more skin in the game.

palaeozoic 12/5/2012 | 3:46:55 PM
re: Gilder's All-Optical Odyssey Scott,

I agree with you 100 percent.

Now, as to the question "why does he still have credibility?" I would respond "why is Light Reading writing about him?"

I say it's time to move on and let George go...
Stevery 12/5/2012 | 3:46:53 PM
re: Gilder's All-Optical Odyssey Nearly every optical and storage company he picked as a winner, lost.

Nonsense. CORV was a big winner and was a hugely successful optical platform, as we were told several times on these very boards.

(God I don't miss those idiots.)
rwelbourn 12/5/2012 | 3:46:51 PM
re: Gilder's All-Optical Odyssey Yep, the guy's a complete loon. He's one of the Discovery Institute's creationism-promoting nutjobs.
optical_optimist 12/5/2012 | 3:46:50 PM
re: Gilder's All-Optical Odyssey Oh .. where to start here. George, George, George, drink some more of that bubble-era Kool-Aid buddy.

Gilder seems to like to use that "vision" word a lot, and somehow Infinera has a "sub-optimal" network vision because it is not all-optical.

In fact most successful start-ups succeed at innovation accompanied by solid execution.
In Infinera's case they recognized that carriers (especially in long haul) needed the flexibility to architect a network where they could flexibly and cost effectively drop the necessary number of wavelengths at intermediate nodes with imperfect forecasts of how many wavelengths would actually be required at each intermediate site over time. Enter an O-E-O solution from Infinera that met all of the latter requirements and from what I'm told achieved order of magnitude price improvements for these intermediate sites.

Successful startups define the unmet want clearly and then execute. They don't conduct holy wars about "vision".

--- Out
Scott Raynovich 12/5/2012 | 3:46:42 PM
re: Gilder's All-Optical Odyssey >I would respond "why is Light Reading writing >about him?"I say it's time to move on and let >George go...

That's a very good point. I guess that as the media we are just a sucker for weird people and train wrecks. File under "Britney Spears."
fanfare 12/5/2012 | 3:46:41 PM
re: Gilder's All-Optical Odyssey ""Why is LR writing about him""

It is a jounalist's/magazine's job to report both sides of an issue ... and be unbiased in reporting the information that becomes available. George is a voice (albeit many disagree with him) that that is heard by the public, and he takes a position . LR, as a reporting entity is doing its job by presenting this position, right or wrong.
Stevery 12/5/2012 | 3:46:40 PM
re: Gilder's All-Optical Odyssey It is a jounalist's/magazine's job to report both sides of an issue ...

It is also their job to filter out the rantings of idiots who have no credibility left. However, I can accept Scott's suggestion that this is filed under trainwrecks and Britney Spears.

God I hope George keeps his panties on.
lightreceding 12/5/2012 | 3:46:32 PM
re: Gilder's All-Optical Odyssey Gilder wrote some interesting Science Fiction, but the idea that people are paying for his advice and that he is managing investment funds is scary.

I think that it is people who are out side of the industry who go to his seminars. It's all just "computers" to them and Gilder appears to them to be a wizard.
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