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Startups Stumble and Succumb

Light Reading
News Analysis
Light Reading
5/24/2002

Grim news about a couple of startups emerged today from Sweden and California.

In Sweden, the directors of Dynarc finally gave up trying to rescue the metro equipment startup. They announced today that they will file for bankruptcy, having failed to interest new and existing investors in a plan to keep the company going as a much smaller entity (see Dynarc Files for Bankruptcy).

Dynarc has been on life support since last October, when it ran out of cash, laid off all but 30 of its staff and started looking for ways to reinvent itself (see Dynarc in Trouble).

Only a couple of years ago, Dynarc was riding high. It was valued at more than $600 million when it raised its last round of funding -- $55.4 million, in February 2000. It went on to win an $18 million equipment order from Song Networks Holding AB (Nasdaq: SONW), a service provider that has also hit hard times.

In California, component startup Solus Micro Technologies Inc. sounds as though it might be in a position similar to the one Dynarc was in last October. "We're preparing to file for Chapter 11 reorganization," Ben Jamison, the company's VP of marketing and sales, told Light Reading today. This will happen "in the next few days."

Jamison says Solus is merely reorganizing "for a specific reason," on which he can't elaborate right now. "It'll become clearer in the next few weeks," he says, assuring that "the company has no plans to shut down."

Solus has already laid off an undisclosed number of staff. Jamison won't give details, but he says they were mainly production staff, no longer needed because the company now plans to outsource manufacturing.

"Some executives will probably be shuffled," he adds. Solus's president and CEO, Terry Bailey, will be going, as will Jamison himself. "Basically, the engineering organization will remain intact," says Jamison.

Solus is developing "compliant MEMS" technology to make a range of tunable components. The "compliant" bit comes from using a special elastic polymer membrane in its devices, making them more flexible than MEMS (micro-electromechanical systems) built with conventional materials. This translates into lower costs and wider tuning ranges, according to the company. Its first products, tunable filters, appeared to compete with ones developed by Coretek, the tunable laser startup acquired by Nortel Networks Corp. (NYSE/Toronto: NT) (see Solus: Another Coretek?).

Jamison says Solus is shipping samples of its first product to customers, who are "continuing to work with us."

— Peter Heywood, Founding Editor, Light Reading
http://www.lightreading.com

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jamesbond
jamesbond
12/4/2012 | 10:20:25 PM
re: Startups Stumble and Succumb
How come we keep hearing bad news only in the
optical sector. Exact bubble seems to exist
in Wireless, Security and Storage. When
do you guys think those bubbles are going to burst? Any ideas...

Roy_Bynum
Roy_Bynum
12/4/2012 | 10:20:24 PM
re: Startups Stumble and Succumb
"What is going to drive the need for greater bandwidth, such that the demand can catch up to the supply?"
________________________________________________

The need for greater bandwidth is based on several things. 1.The desire to make use of interactive applications that require higher bandwidths for acceptable performance. 2.The willingness to pay the higher cost for higher bandwidth connectivity. 3.Access connectivity that will support a diversity of services, not just packet or video. 4.Lower cost connectivity and service architectures. 5.Lower cost content. 6.The will to deploy an access infrastructure that does not have immediate return on investment.

It will take all of these things to come together at the same time. It will be the next generation of customers, today's children that will be the real driving factor to deploy universal broadband access.

The adults of today, for the most part, are not operantly conditioned to desire to make use of applications that require higher bandwidth. The children of today are being conditioned through games and other media to want and be willing to pay for the higher bandwidth applications when they grow up, have jobs and homes. This is the same pattern that we see in high channel count cable TV of today as an operant progression from the limited channel cable TV of the previous generation of home owners.

While this may take longer than some people would like, it will happen. It may take the political will of people to force the deployment of FTTx infrastructures. Right now, there are still several states that will not allow cities to deploy communications infrastructure or power/water utilities to deploy retail communications services. This also will have to change.
Peter Heywood
Peter Heywood
12/4/2012 | 10:20:24 PM
re: Startups Stumble and Succumb
Someone was telling me about an interesting phenomenon happening in the UK at the moment. I haven't had an opportunity to check it yet but it seems to point to a lot of latent demand for broadband.

BT has said that it will install DSL in any exchange where at least 400 customers will commit to buying broadband.

As a result, folk in small towns are setting up websites to try and collect at least 400 commitments to order DSL connections for their local exchange.

I'm sure this is going to take off. A growing number of professionals work from home for one reason or another. These folk (and I'm one of them) are perfectly prepared to pay for decent broadband Internet access. It's still a heck of a lot cheaper and more convenient than commuting to an office.

I can see big bottlenecks occuring in BT's network as its broadband initiative takes off.

So it's good news all round, I'd say. Maybe I'll get a broadband connection to my home/office at last, and maybe orders for optical networking kit will start flowing again.

nbwaite
nbwaite
12/4/2012 | 10:20:24 PM
re: Startups Stumble and Succumb
What will drive up demand?

We can use high quality digital motion video over
'the Internet' and related networks. Some of the
uses include conversations, conferencing, news,
entertainment, education, training, delayed viewing
of presentations and interviews, remote walking
tours and inspections of farms, factories, products
for management or marketing, monitoring,
surveillance, remote presence, etc. Economic
drivers include saving on commuting and travel and
expensive real estate locations, especially in the
context of globalization.

And, of course, grandmothers will want to see their
grandchildren smile, hear them giggle, up close,
with full color, full photographic resolution, full
motion, CD-quality sound, half a world away,
routinely.

Other network uses include some of the high end
distributed computer applications envisioned by the
Globus project and 'grid' computing.

Other uses include data collection of wide variety,
computer site remote logging and backup, and more
ordinary distributed computing.

It is fair to say that with the .NET efforts,
distributed computing is currently the main thrust
of Microsoft's development efforts.

What will such applications mean for capacity?

Okay, one approach to high quality digital motion
video is MPEG 2 compression of standard broadcast
TV. For this, common bandwidths range from 9 Mbps
(million bits per second) to 15 Mbps. People will
generally want the quality they are used to on TV,
and we should not expect to get that quality for
much less bandwidth than MPEG 2. An HDTV signal
will generally require more. Okay, many
applications will require one such signal; a
conversation will require two; conferencing will
require at least two; and some cases of remote
presence will require several.

And, some of the applications of Globus will require
much more.

And, for some of the on-line shopping applications
envisioned by some of the Internet bubble -- 'clicks
instead of bricks' -- one of the more severe
problems was a gross lack of bandwidth for getting
product information. That is, to a careful shopper,
a little picture one or two hundred pixels on a side
can't begin to communicate the information of having
the product in hand, being able to look at the back
side, the inside, etc. For selling books and
records, sure, low bandwidth can suffice, but for
selling most things, no way.

How much economic importance are we talking about?

Well, before 9/11, about 75% of airline travel was
for business, 'road warriors'. Well, the cost of
that travel has gone way up. And, with more in
globalization, it will go up further. And, if we
want faster business execution -- and most of the
world does -- then the cost will go up further.

We can also toss in savings on much of the cost of
the auto industry, which, after all, is used mostly
for commuting to jobs.

We can also toss in savings on expensive real
estate. Would you believe $50 a square foot, for
office space? That's not the cost to build it or
the price to buy it, just the price to rent it, for
just one year.

Commuting over an hour one way and then over an hour
the other way, at least five days a week, plus the
time to maintain a car running for so many hours a
week -- it really adds up, in the US, to a major
fraction of the GDP.

Saving on travel and expensive real estate ain't
small potatoes, guys.

If we are going to blow $10,000 a year, after-tax,
on a car mostly for commuting to work, are we ready
to look for some alternatives that might cost, say,
$5000 a year and save 10+ hours a week?

So, a really 'well-connected' PC would have
bandwidth to and through the Internet of, say, 50
Mbps. That's about 1000 times more than is common
at present.

So, that's a factor of 1000, to and through, 'end to
end'. And, we might actually be using much of that
bandwidth, say, six hours a day, which is more hours
per day than common currently. So, we're talking
bits per day carried by the Internet increasing by 3
or 4 factors of 10, just for this PC usage. Toss in
some of the other applications, and give it four or
five factors of 10.

But, if we have, in the US, 20 M people paying $400
a month for their PC bandwidth, then we're talking
$96,000 M = $96 B (billion) a year in expenditures.
Think that would perk up the business of fibers,
lasers, switches, routers, etc.? And, would want to
toss in the other expenditures, like the parent
getting the video feeds to watch the kids on the
neighborhood playground, or maybe the grandmother in
California watching the kids in Maryland.

As the expenditures and deployments increase, prices
per bit per second per mile will fall. They will
have to fall -- by huge factors. And, with such
expenditures, there is high motivation to make the
prices fall.

One of the bottlenecks: If we are going to grow
such usage very quickly, then prices will have to
fall very quickly. Then, each month, for the needed
new capacity, who wants to invest $1 M in capital
expenditures when the value of that investment will
fall as we hope the prices will fall? Or, if we are
going to have to write off the capital expenditures
over short periods, then we will have to pay for
them over short periods with high prices.

But, the evidence is that last mile broadband
deployments are continuing and the total number of
bits carried per month is rising, quickly.

This future won't all happen with just one easy
sweep of the hand, but it's tough to think of
anything that will stop it. And, it does appear
that, in historical terms, compared with other
deployments of revolutionary technology, 'the
Internet' is still moving forward quite quickly.

Year by year we will have more and more capacity and
will be using it. In 10-20 years, we should be able
to look back and see some really big changes. Nearly
all of us will be very heavy users of bandwidth --
we will use it like water in an area with lots of
rainfall. A 15 Mbps signal will be seen as a small
thing, and we will commonly have several going at
once. We won't see how people ever got along
without it.
USA
USA
12/4/2012 | 10:20:24 PM
re: Startups Stumble and Succumb
I think the greater question is 'what is going to burst the bubbles'. What is going to drive the need for greater bandwidth, such that the demand can catch up to the supply?

I'm not convinced 3G is going to catch on that quickly due to the requirement to purchase new mobile phones, plus the limited demand for 'video on your telephone'.

Is DSL take rate going to increase and in turn increase the need for more Metro and long haul bandwidth? One would hope so, but the fiber exhaust problem in the fiber fed RTs would have to be resolved first.

Maybe Video on Demand or Medical Imaging will help drive up the utilization of existing networks.

I think the key ingredient in bursting this bubble is to get the cost of bandwidth down to a point that users can afford to increase their use of existing networks.
dodo
dodo
12/4/2012 | 10:20:22 PM
re: Startups Stumble and Succumb
Peter

Just curious to know how much BT is planning to charge for a DSL service since local calls are on a toll basis.

I am just comparing prices across N.America since Bell Canada has decided to chance their rate as per their memo sent to subscribers:

"Effective July 4, 2002, your monthly rate for Bell Sympatico High Speed Edition(TM) Internet service will increase to $44.95 --
still one of the lowest rates for high speed access in North America.

Also, effective July 4, 2002, your monthly rate for Sympatico High Speed Edition service will allow 5 Gigabytes (GB) download and 5 Gigabytes (GB) upload of bandwidth activity. If your
bandwidth activity exceeds either 5 GB download or 5 GB upload, an additional charge of $7.95 per GB will be applied to your Sympatico account"

Thank you
aran
aran
12/4/2012 | 10:20:21 PM
re: Startups Stumble and Succumb
www.terasync.net

rjmcmahon
rjmcmahon
12/4/2012 | 10:20:19 PM
re: Startups Stumble and Succumb
The need for greater bandwidth is based on several things.
______________

Video will drive the demand for bandwidth.

As an example, the only way the music labels can grow is to transition to music *videos*. They will need to create a whole new library of downloadable music *videos*. They will need to sponsor a whole new class of consumer electronic devices which play music *videos*.

If done properly, the indie artists will also be able to leverage this new infrastructure and they should not have to sign contracts forcing them to pay recoupable expenses for their entire careers.
rjmcmahon
rjmcmahon
12/4/2012 | 10:20:18 PM
re: Startups Stumble and Succumb
Lot's of wonderful rhetoric in your post, but these demands and applicatoins have been around for quite some time and we still have this telecom downturn.
__________________

The downturn is not a result of businesses meeting the demands posted by nbwaite.

The downturn is the result of two things. First, the greed turned to fear when the bubble burst and speculative capital fled from telecom (thankfully). Second, the legacy businesses and their poor business models do not know how transition from a state run economy to a market economy.

Think of it like the Soviet Union breaking up and turning to market economies. During the transition, those on the payrolls of these state run industries will fight like mad to preserve their position.

It's only those that they learn how to create value in a market economy that are able to make the transition.
USA
USA
12/4/2012 | 10:20:18 PM
re: Startups Stumble and Succumb
nbwaite,
Lot's of wonderful rhetoric in your post, but these demands and applicatoins have been around for quite some time and we still have this telecom downturn.
As Roy points out in his message it is more complicated that grandma wanting to see their grandbabies.
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