Startups Adjust to Long-Haul Reality

Market research figures due out next month from several firms will show ongoing reductions in the size of the long-haul DWDM market worldwide. But in spite of the negative forecasts, a core of well-funded startups insist the future is theirs.

Updated forecasts from IDC, Infonetics Research Inc., and KMI Corp., due out in early August, will show an ongoing downward trend. And some say the end isn’t yet in sight.

”We haven’t seen the bottom. The drop in sales in 2002 will exceed the reduction in 2001,” says Sterling Perrin, senior research analyst at IDC. That reduction was 34 percent, Perrin says, and in the first quarter of this year, sales were down another 30 percent from that. Indeed, Perrin thinks that if total capital spending by carriers drops as he expects by 40 percent this year, the first quarter of 2002 could be “the strongest” quarter of the year!

Other studies seem to endorse this view. KMI says worldwide sales of long-haul DWDM gear in the first half of 2002 were down 35 percent. While metro sales have dropped as well, they haven't dropped as dramatically, the firm says. And recovery prospects are bleak: "We don't expect more than a modest, single-digit increase in 2003, less than 10 percent," says Neil Dunay, KMI senior analyst.

Infonetics is a bit more upbeat. It says first-quarter sales of long-haul equipment (including DWDM and Sonet/SDH gear, which Infonetics says together comprise roughly 50 percent of the optical market) were down 28 percent from the fourth quarter of last year, and upcoming figures will be worse. But in 2003, the firm believes carriers will be eyeing new core DWDM gear with longer reach as a way of reducing operating expenses associated with older equipment.

"There's certainly enough fiber. But traffic does keep increasing. And at some point, carriers are going to find it more cost-effective to spend the money needed to reduce their operating costs," says Infonetics principal analyst Michael Howard.

It's a prognosis the core believers subscribe to (see Vendors Aim to Cut Costs in Core). And even though long-haul DWDM is suffering the back-burner fate of other technologies in the carrier network core, such as optical crossconnects and switches (see Core Optical Startups Chill Out ), startups are tenaciously hanging in there.

Last week, Ceyba Inc. (formerly Solinet Systems), one of the sector's best-funded startups (see Solinet Systems Scores $93 Million), laid off roughly 50 support people out of its 250-person workforce, in what CEO Scott Marshall says was a measure to ensure the startup's survival.

But he remains upbeat on the segment his firm has targeted: "We certainly haven't given up on the core optical space." Carriers are still buying cards to upgrade their existing DWDM gear, and in 2004 they'll be looking at next-generation replacements. And Marshall's confident Ceyba can hold out at least that long with its present funding.

Marshall admits, though, that he's open to looking at new applications for Ceyba's technology -- perhaps in the metro core, where things are slated to improve sooner than they are in the long-haul arena.

Another well-funded long-haul startup won't change at all, though. Innovance Networks says it's picked the right space, despite the present bad news.

"I'm personally convinced that the business case for next-generation equipment is very sound," says CEO Peter Allen. "The breadth and depth of the account engagements we're looking at encourage us to stay the course." Besides, he says, it's tough to make a metro product out of a long-haul one. "When you've optimized a technology solution for long haul, it won't necessarily port to metro applications easily."

Innovance had a layoff at the start of this year (see Innovance CEO: Layoff Was a Tuneup). But that hasn't dimmed the vision of the founders, Allen says. If Innovance sees the need to change its strategy, it will, he says. But it hasn't seen the need as yet.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com Want to know more? The big cheeses of the optical networking industry will be discussing this very topic at Opticon 2002, Light Reading’s annual conference, being held in San Jose, California, August 19-22. Check it out at Opticon 2002.

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corvo 12/4/2012 | 10:03:29 PM
re: Startups Adjust to Long-Haul Reality if these wise men were any good they should have been able to predict these declines back in march 2000. those days the only words you would come across were 'explosive', 'booming' and 'unprecedented'. even as late as mid 2000 they were recounting thrilling anecdotes - about how companies ordering fiber then would not be able to get hold of any because manufacturers could not keep pace with demand. even after nortel's 1st quarterly miss (revenue target) in 2000 they came up with the most preposterous explanations for the shortfall. now that you can see what's happened they are busy again - extrapolating the past. the truth is that these wise men are like weathermen of yester-years: they can predict with great accuracy yesterdays weather but are no great shakes when it comes to telling what things will be like tomorrow. if, by any chance things turn around before 2003 these messiahs will again find a new bandwagon to ride on. so, personally, i would take anything these market clairvoyants predict or forecast with more than just a pinch of salt.
dodo 12/4/2012 | 10:03:28 PM
re: Startups Adjust to Long-Haul Reality well said Corvo.

I remembered back in June 1999, when Robert Metcalf told an audience at Supercomm that the Internet bubble wouldn't last forever and the analysts- both Industry and financial ones- in the rooms were chuckling about his comments.

Well guess who was right.
lightshow 12/4/2012 | 10:03:27 PM
re: Startups Adjust to Long-Haul Reality I couldn't agree more! I mean, there is nothing wrong with being positive and confident, but my issue is to what lenghts people will lie to get on top. They are all screwing with us.....our lives, our money, and our time.

There was a post just last week from an ex-Ceyba employee that states that 80% of those laid off where actually R&D. Ceyba claims it was installation. Guess what, they don't have a product yet. They are in the final stages. What are they doing hiring 50 installation and support people for no product. What, can they not "predict" that no-one is buying this year?? Why lie about who you are laying off.....I know why, so that you do not scare off your "potential" customers. "Oh, they are just installation, we will hire them back when you need to build." Instead of "Yes, we did reduce our R&D staff, and we going to take a small hit, but, don't worry, they are a dime a dozen these days"

I just think that it is a shame that CEOs are lying to the public. I think that every one of the 50 that were laid off should get on this message board and expose their company. It will make others think twice. This is how Enron and MCI problems start.....small white lies!!

dodo 12/4/2012 | 10:03:25 PM
re: Startups Adjust to Long-Haul Reality Lightshow

they don't give a hoot about the public since tehy are still private. They want to dazzle the VC by cutting headcounts and lie to potential customers
BobbyMax 12/4/2012 | 10:03:21 PM
re: Startups Adjust to Long-Haul Reality There is a very little market for long haul DWDMs. So the start-ups and public companies like Ciena would face dificulty in pushing their products. Moreover DWDMs and the cost of amplifiers makes long haul DWDMs very unattractive.
rzerockzeron 12/4/2012 | 10:03:03 PM
re: Startups Adjust to Long-Haul Reality Let me re-post this link on Innovance views on the LH market:

They believe their position in the LH market is strong compared to the big guys. Although I do hope the market comes back (cuz we all need it!), I strongly doubt the NA carriers will deploy full new LH systems with a startup company which may or may not be here next year.

Remember, in these hard times, the bean-counters rule the techies, not the other way around. Fancier optical features will not win the LH market: it will be cheap, proven technology which can be deployed overnight by the RBOCs.
Reindeer 12/4/2012 | 10:03:02 PM
re: Startups Adjust to Long-Haul Reality Wow! I read your link below and it seems like a page out of Fantasia... the market is about to "boom" and they are "bang" on? Huh? Did I miss something or is the boom and bust coming from the bubble that just burst. It would be nice for the market to come back but it was slooooooooowly come back with carriers buying proven gear from Lucent/Nortel/Alcatel and not have to go through the costly growing pains related to a new platform/technology. Just my opinion.
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