Optical components

Little Guys Call FTTP Shots

ANAHEIM, Calif. – With fiber-to-the-premises (FTTP) a hot topic, it's no surprise to see the related components get some buzz at OFC/NFOEC. But the bigger players have been shut out of the transceiver portion of the business, and it looks as if they're content to stay that way.

Companies like Fiberxon Inc. , LuminentOIC Inc. , and NeoPhotonics Corp. (NYSE: NPTN) all claim to be rising stars in the market for diplexers and triplexers, the two- and three-wavelength transceivers instrumental to PON and FTTP.

Emcore Corp. (Nasdaq: EMKR) chimed in at the show, introducing GPON triplexers -- the three wavelenghts are one upstream, one downstream, and one for an RF-based TV feed. (See Emcore Intros Triplexer.) But other big names -- notably the telecom-optics triumvirate of Avanex Corp. (Nasdaq: AVNX), Bookham Inc. (Nasdaq: BKHM; London: BHM), and JDSU (Nasdaq: JDSU; Toronto: JDU) -- have shunned the market, and they're not likely to change that.

It's a high-volume business and has the glamour of FTTP behind it, but the pricing can get scary, a common theme in optics.

Here's how bad it can get. Infinera Corp. (Nasdaq: INFN) CEO Jagdeep Singh notes his company was approached to build a one-chip triplexer, taking advantage of Infinera's semiconductor integration talents. Volumes would be high -- 1 million per month. The price? "Less than a buck," Singh sighs. Infinera said no.

In more normal quarters, module prices once more than $100 have dropped to the $50 range for volumes in the range of 500,000 units, NeoPhotonics officials say.

The declines stem partly from the nature of PON. Prices have to stay low because end users, especially residential customers, won't foot the bill for fiber buildouts. But it's also the effect of competition and desperation.

"In the desert days, you had a number of companies without much business saying they could drive the costs down by 50 percent. If you say it enough, the customers start saying it, too," says Tim Jenks, NeoPhotonics chairman and CEO.

The smaller players claim it's also an after-effect of R&D cuts, saying the bigger companies didn't leave themselves the resources to catch up as fiber-to-the-premises got hot. Bookham and JDSU both say they kept up R&D spending during the downturn, focusing on areas like tunable transponders and ROADMs (reconfigurable optical add/drop multiplexers), respectively.

For now, the big companies have to be content with peripheral plays. Bookham and JDSU note they've sold thin-film filters to triplexer vendors before, and Avanex likewise has thin-film filters. And JDSU can get into FTTx from the test-and-measurement side, offering products from recently acquired Acterna Corp. (See JDSU Buys Into Testy Market.)

But the odds of a triplexer play from JDSU sound small, as the company would rather be peddling higher-margin ROADM products. "With three or four customers and 10 or 20 vendors, you know what the dynamic is going to be," says Enzo Signore, JDSU's vice president of marketing.

So, how do these triplexer people plan to survive? The key, they say, is you have to have already built up a volume business. "If you have a good customer base, it can be a good business. It's not going to be 60 percent gross margins, but it could be 30 percent," says Ferris Lipscomb, vice president of marketing for NeoPhotonics.

Lipscomb says his company ships 100,000 bidirectional transceivers per month to Japan -- a volume that the company picked up with last year's acquisition of Chinese vendor Photon Technology. (See NeoPhotonics Expands in China.) "That has reasonable margin. It's not Cisco margin, but it's reasonable for that kind of product," he says.

From this point, NeoPhotonics will try to use photonic integration to lower its own costs, thereby raising margins. The company has a PLC-based transceiver that's showing at OFC/NFOEC. (See NeoPhotonics Intros Triplexer.)

For LuminentOIC, which recently celebrated 500,000 triplexers shipped, the Verizon Enterprise Solutions FiOS project is the volume driver. (See LuminentOIC Ships 500K; did the 500,000th one win fabulous prizes, we wonder?) Like NeoPhotonics, the company believes it can wring profits from triplexers. "We intend to operate at a 20 to 25 percent gross margin," enough to bring the business into profitability by the end of this quarter, says Alexis Black, LuminentOIC's chief marketing officer.

— Craig Matsumoto, Senior Editor, Light Reading

vrparente 12/5/2012 | 4:02:59 AM
re: Little Guys Call FTTP Shots could you explain how the Luminet number gets tied to Verzion -- ? The optical technology in question has other network technology applications and could be in use in other (non GPON) product ....
Pete Baldwin 12/5/2012 | 4:02:59 AM
re: Little Guys Call FTTP Shots I'm not trying to say all 500,000 went to Verizon (nor is Luminent) ... just that Verizon is a customer they boast of, and by the way, they had this "500,000" thing recently. The statements are related but not necessarily equated.

Where else are you seeing triplexers used, besides PON? I wouldn't think they'd have many other uses, being such a specific technology.
lite-brite 12/5/2012 | 4:02:56 AM
re: Little Guys Call FTTP Shots the number of comapnies investing millions in r&d to sell compnonents at negative margins in the hope that vendors will eventually stop squeezing the component makers really makes me laugh (because i don't see it happeining until big consolidation takes place, and i can't see that happening...vendors like MSA's, and second/third sourcing.

There are a couple of small optical component companies out there, making their own way without asking for handouts, and without 'selling components with a dollar bill wrapped around them' as i've heard it put.
rbkoontz 12/5/2012 | 4:02:42 AM
re: Little Guys Call FTTP Shots Matsumoto, are you nuts? "It's a high-margin business and has the glamour of FTTP behind it"???? Let's please not hype this market more than it already is. Check out MRV/Luminent's 10K filed last week - optical component gross margin was 11%. I asure you triplexers dragged this down. And - yes - most of the triplexer volume did ship for Verizon FTTP.
Pete Baldwin 12/5/2012 | 4:02:41 AM
re: Little Guys Call FTTP Shots gaack -- it appears I cut-and-pasted something wrong in my final version, beause I clearly did NOT mean to call triplexers "high margin.' Thanks for pointing that out, MostWanted; i'll take that part out.

Obviously the whole point of the story is to say the devices are LOW margin -- you can see that in the following paragraph (the < $1 anecdote). Chalk it up to late-night writing on the road.

The "glamour of FTTP" phrase *was* intentional, though, because there's a definite sizzle factor there. It's just that people forget the carriers are pounding down prices on the stuff .... George Notter at Jeffries is saying the U.S. RBOCs will want their GPON at the same prices as BPON, so margins are off to a lovely start there.
bw 12/5/2012 | 4:02:23 AM
re: Little Guys Call FTTP Shots Craig,

It's definitely true that ONT (triplexer) will be relative low margin, as most likely the service provider will almost "give it out at cost". What's important is to provide both OLT and ONT side of products so the average margin will be respectiable. OLT is harder to design, and the field is significantly narrower, and those vendors really have a shot need to have both volume capability, track record, AND good design capability to meet stringent FSAN requirements. You should go to check deeper who can provide both side of products, and those companies/vendors can win long term, with sustainable business.

olsen 12/5/2012 | 4:01:49 AM
re: Little Guys Call FTTP Shots What about the PLC-effort from Ignis Photonyx / Enablence / Samsung?
Ignis had quite a large booth at OFC/NFOEC 2006.
Didn't they demo this?

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