The R&D Picture
I heard plenty of reassuring words at OFC/NFOEC two weeks ago. Most companies admitted to some cutbacks but denied slacking on their R&D support for big-ticket items. "When people invest in something now, they really believe in it," said Gilles Bouchard, new cost-cutting CEO at Opnext Inc. (Nasdaq: OPXT). (See Opnext Changes CEOs, Starts Cutting.)
But optical components and subsystems companies are struggling to subsist, and that doesn't leave much mad money for R&D. Stan Lumish, former JDSU (Nasdaq: JDSU; Toronto: JDU) chief technology officer and now an independent consultant, points to equipment vendors that play components suppliers off one another, keeping prices low. "They're pulling that string for as long as they can. In a way, it's irrational."
Help from the systems companies probably wouldn't emerge unless desperation set in. "I almost wish something would break, and then somebody would say, 'We'll make an alliance or a partnership,' " Lumish says.
Another pessimistic outlook comes from Carl Amdahl, a partner at DCM - Doll Capital Management and an investor in OneChip Photonics Inc. , a startup hoping to make money off of photonic integration. (See OneChip Tries Infinera's Trick.)
"I would say the traditional optical suppliers and the traditional optical equipment suppiers are in a bit of a holding pattern from an R&D perspective," Amdahl says. "If you're a public company, you're under tremendous pressure to reduce your burn."
For a private company, "you're living off dollars you've already raised," rather than having much hope of late-stage financing, he says. "This is truly a problem. The challenge is that there just isn't the appetite to invest the dollars in it."
That's why OneChip is targeting the fiber-to-the-home market first. It's one of the few optical components areas with promises of high volumes. But it also happens to be a crowded market with famously low margins, so not every startup (assuming more emerge) is going to line up for that fight.
The risk, as always, is that when the time comes for a new whiz-bang idea, no one will have put in the resources to fully develop it. I'll leave you with Bob Metcalfe's video interview from a year ago. He thinks Terabit-speed Ethernet will require a rethinking of everything, possibly even the materials used in fiber. If he's right, somebody's got a lot of work to do.
— Craig Matsumoto, West Coast Editor, Light Reading