siliconvalley.com
Posted Monday, April 16, 2001
Oni Systems continues to thrive in a withering market
BY JENNIFER FILES
Mercury News
Perhaps it's no surprise that in the booming telecommunications market of 2000 the fastest-growing SV150 company was an optical networking firm.
What is striking is that Oni Systems continues to thrive.
Other communications equipment companies -- from powerhouse Cisco Systems to once-promising start-ups -- began withering late last year, as their customers dramatically scaled back capital spending. But so far, Oni, a four-year-old San Jose firm that builds equipment for routing phone calls and data traffic through metropolitan areas, has avoided the industry's downturn.
While many firms in the industry started laying off workers in late 2000, Oni, which employs 600, says it is still hiring 10 to 15 people a week. And in February, while dozens of other firms were reducing their bullish financial projections, Oni raised its estimates for 2001 revenue and earnings.
Oni's revenue vaulted from $3 million in 1999 to $59.7 million in 2000 -- an increase of 1,866 percent. Chief Executive Hugh Martin projects 2001 revenue of as much as $235 million -- nearly twice the estimate he was giving out last July. Oni will turn profitable in the fourth quarter of 2001, Martin said.
``I wouldn't have predicted that the ball would start rolling as fast as it has,'' he said.
Optical networks, which carry voice and data calls as pulses of light waves, can transmit far more data, much faster, than traditional electronic networks. And efforts to refine optical technology have grown exponentially as the demand for network capacity has increased in recent years.
Photo by: Richard Koci Hernandez
Oni CEO Hugh Martin holds a fiber fault locator. Oni continues to thrive despite the general slump among optical companies because its niche -- the metro market -- is booming.
Oni's niche -- referred to in the industry as the ``metro market'' -- fits into the middle of a telecommunications network, between long-haul communications lines and the lines to businesses and homes. While it was slower to take off than other parts of the industry, it is increasingly viewed as a lucrative business. High-capacity broadband lines can quickly clog old-style urban phone networks, but if phone companies invest in better metro connections, they can provide more services to their data-hungry customers.
And so, while phone companies are cutting back spending plans, analysts still predict they will continue to make large investments in equipment for the metro market.
``They're now saying, `Where should I focus my capital equipment dollar?' and it's where they can get more revenue,'' Martin said.
Worldwide spending on communications equipment is expected to rise just 11 percent to $2 trillion this year. But Martin says he expects spending in the metro market to jump 400 percent, from $300 million in 2000 to $1.5 billion in 2001.
Oni's market value hasn't done so well, though. Last June, its stock price more than tripled in its first day of trading, closing at $82.56, up from an initial offering price of $25. The company raised more than $230 million in its IPO, and more than $800 million more in a secondary offering in October. But its stock price has fallen from a high of $136.75 last summer to the low $20s, where it was trading as of early April.
Some analysts say the market for Oni's products isn't so sure to take off, as Martin predicts. Other networking niches, after all, have performed worse than expected. But one-quarter of the way through 2001, the strength of the metro market means Oni should ``be well insulated from a near-term slowdown'' said Thomas Weisel Partners analyst Hasan Imam, in a recent industry report.
Oni's biggest competition comes from a pair of larger, more diversified equipment makers. Nortel Networks, North America's second-largest communications equipment maker, had a 55 percent share of the metro market in the fourth quarter of 2000, with sales of $86 million, according to the Dell'Oro Group, an industry research firm. With fourth-quarter equipment sales of $30 million, Oni garnered 19 percent of the market, edging past its other major rival, Ciena, which sold $28 million worth of equipment for an 18 percent share.
Oni makes no secret of hiring experienced telecom engineers from its more established competitors, and Nortel is pursuing a patent infringement lawsuit in California against the company. ``We welcome competition, but we do not like competing against ourselves,'' said Nortel spokesman David Chamberlin. Oni denies the allegations.
Oni expects to nearly double its workforce this year -- ending 2001 with about 1,100 employees, mainly in San Jose.
The company bought technology from Finisar, a Sunnyvale company, that gives it the capacity to connect its metro lines into buildings and a company's local area network. But Martin is pulling back from earlier plans to expand Oni's market capabilities through larger acquisitions, choosing for now to concentrate on building its core business, instead.
--------------------------------------------------------------------------------
Contact Jennifer Files at jfiles@sjmercury.com or (408) 920-5026. |
