Little Guys Call FTTP Shots
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