Gus --
Good interview. Too bad SDL couldn't be named. I've put together the article with press releases from SDLI, along with comments from the last conference call:
mercurycenter.com
Published Monday, March 13, 2000, in the San Jose Mercury News
Q&A on the boom in fiber-optics
Bandwidth demand only just beginning
Some of the hottest telecommunications companies these days are the ones involved in fiber-optics. These players are giving a huge boost to the capacity of the Internet and phone networks by using light waves instead of electronic pulses to transmit information.
The world's leader in optical transport equipment is Alcatel, a giant French telecommunications company. Christian Reinaudo, the president of Alcatel Optics, recently spoke to Mercury News Staff Writer Jon Healey about the demand for capacity, or ``bandwidth,' and the slew of buyouts in his industry. What follows is an edited transcript.
QWhat is driving the growing demand in bandwidth, and how is that demand being met?
AWe (the telecommunications networks) have been moving in the last two or three years from voice leadership to data leadership. What we have seen so far, in the years '97, '98, '99, is primarily the (growing) number of users of Internet and people asking for data communications to their home or to their business and the number of e-mails that they have sent.
I think we are just at the very beginning of something that is going to be a huge evolution. And what we are going to see -- which is going to start now, by the way -- is the kind of usage (changing), the kind of services that we can deliver to customers.
Mind you, we are today in the situation where we probably were one century ago when we discovered that we had oil to make engines work. Since then, we have discovered that with oil we can do other things. I have the feeling that we are about in the same situation today. We just discovered that bandwidth, which was difficult to get in the past, is now something that you can have from the tap.
Another driver for the bandwidth demand -- when you use a commodity, you use more and more and you cannot accept that this commodity is not immediate. Today, if you ask the people who have been using the Internet for months or a year, people (accept) that they need to wait for a few seconds before they can download a file, a big file. I have the feeling that more and more people are saying, ``It's incredible. It's too long. We need to do something. We need to have DSL. We need to have quick access.'
QWe're seeing an acquisition wave in the optical space. What do you think is behind that?
AToday we are in an industry that is young because the technology is young, an industry that is young because the demand is new. The telephone is already old, but the demand using these lines for transferring files, for video, for data is absolutely new.
This industry is new also because the big ones like Lucent, Nortel, Alcatel, maybe Cisco, and the other ones, have not yet, I would say, clarified their positions in terms of where they want to go, what kind of standardization they are going to pursue, even what kind of products are we going to offer. So there is still a big, big, big space available for new companies just being created with smart guys, one idea, one product.
The companies that are growing quickly, they very quickly realize that they cannot have the resources to develop all the products that their customers will need. First because it is costly, but also because you need to have a very, very good vision of the future to develop all the products. There are so many possibilities. But that's probably the reason why there are a lot of small companies or start-ups. Some of them die very quickly, a few of them are successful. And these companies, where they develop products, they give the big ones, or the potential acquirers, an extremely good possibility to go quickly to the top.
Today you cannot, of course, develop everything. And if you want to be quick to the market, because the market is growing so fast, when you develop a product three months before your competitors, you make a lot of money -- a lot of money.
QSo, are people basically placing a lot of bets on potential products now? Is that what it's about?
AIt's a lot of bets. There are things that we know and things that we think and things that we bet on. But the things we know are what? First, that there is a network that is going to be all optical, probably, in a few years. Why all optical? Because there is an irreversible plan to move from electronics to optics. It will be so easy to transport light, that will be the standard.
Next, things that we think: The legacy network, which is installed today, we'll have for some time. But you cannot develop trillions of dollars every day and, by the way, you cannot manufacture all the components that we need to do to move very quickly into an optical network. So we need to ensure a smooth transition between the networks that are installed today or that have been installed in the last years, and the networks of the future.
And next is things that we can't know, things on which we bet. Today there are companies that are betting on the fact that everything will be IP (Internet Protocol-based). There are others that think the transition (to IP) will be a slow one.
Q What do you think are the main hurdles yet to be overcome to get to the day where there's an all-optical pipeline from the back of your home PC out to the Web?
AThe major hurdle, I would say, is the amount of money you have to spend building the infrastructure. Building a big cable across the United States or across the Atlantic, if you think about it, would be several hundred million dollars. But bringing fiber to all the homes in the United States or in Europe is a huge, huge amount. So I think it will take some time, and hopefully there are several companies developing technologies to reduce the cost for all of these things.
The second hurdle is that we still need some key technology, in terms of components, in terms of connectivity, in terms of overall switching. The third domain, I think, is standardization.
Q When will fully optical switches be developed?
AThere are people claiming to have it in the lab. I think that's almost true. I have a feeling this kind of technology will come to the market in the next 12 months.
Q Where is bandwidth increasing the fastest today?
AIf you talk about capital deployed for backbone optical networks, I think the mainstream is still probably in the United States. But what we're probably going to see in 2000, 2001, is Asia coming up.
In terms of the backbone, in terms of big submarine architecture (in Asia), for three years we have done nothing, almost nothing. The perception we have today -- and it is not only a perception, it's the number of calls for bids -- there is something in the range of $8 billion in submarine systems that are in preparation in Asia today.
My feeling is that we will see in Asia the same kind of history as we've seen in Europe, for example, where we are currently building, 30, 40 pan-European networks. In Asia, you have the incumbent operators with their networks and we have the new carriers like Level3 and Qwest coming into Asia to build. And after that, they will have to connect back into the United States for access to Internet servers.
In the United States, I think we will see a change. The capital will be more into the regional metro and enterprise markets. It will be the opposite in Europe, because Europe still needs to equip the networks they are currently building.
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San Jose, California, January 31, 2000-- SDL, Inc. (Nasdaq: SDLI) has reached an agreement with Alcatel Optronics to extend an existing multi-year agreement for the supply of 980 nm laser chips and fiber Bragg gratings up to the year 2003. The agreement covers supply of 980 nm laser chips and fiber Bragg gratings used in pump modules manufactured by Alcatel Optronics for use in undersea fiber optic networks. The extended agreement follows the successful joint qualification and production ramp of these chips announced in August 1999. A significant feature of the extended agreement covers the next generation of the SDL 980 nm chip, the 6540 Series, continuing the successful collaboration of the two firms to produce the highest performance pump modules for undersea DWDM networks. The new pump module will be capable of powers exceeding 180 mW and will be available later this year.
According to Michael Staskus, Product Line Manager of SDL, ?This agreement confirms SDL?s market leadership in this product segment and further validates our successful strategy of close collaboration with the leading customers in each market segment. The market for undersea fiber optic components is one of the fastest growing, yet most demanding segments in the industry. Our focus on quality, performance and volume production continues to support the rapid development and deployment by our customers of networks with ever increasing bandwidth on land or underseas.?
G‚rald Chr‚tien, Product Line Manager at Alcatel Optics states, ?Alcatel Optics is the world leader in submarine transmission. Thanks to the high performance and reliability of the Alcatel 1998 SMG pump module manufactured by Alcatel using the SDL?s chip, transoceanic links are now capable of Terabit per second transmission. The extension of our collaboration will allow us to double the power available from the pump module, leading to the highest capacity ever reached for a commercial submerged link.?
San Jose, California, August 3, 1999-- SDL, Inc. (Nasdaq: SDLI) and the Alcatel optronics activity, both leaders in components supply for DWDM undersea transmission systems, recently completed a joint collaboration on the performance and reliability of grating-stabilized 980 nm pump modules used to pump amplifiers for undersea deployment. The two companies initiated this project in 1998 and recently presented the results at the Tenth Topical Meeting on Optical Amplifiers and Their Applications in Nara, Japan. SDL is now in production and quickly ramping capacity to supply the 980 nm chips and fiber Bragg gratings to Alcatel. Alcatel is building the high power, high reliability, wavelength stabilized undersea pump modules.
Product features of the new high performance 980 nm module include output powers of 100 mW and an operating temperature range from 0§ to 43§ C. Under these conditions, the predicted failure rate has been demonstrated at less than one percent over 25 years of operation. This is approximately five times better than the reliability required for terrestrial deployment. As a result of these reliability tests, SDL and Alcatel are enabling submarine systems to increase their wavelength channel counts to 32 and beyond. To date, the highest undersea system channel counts deployed have been 16 channels.
"It is important to note both the significance of the work and the scale of testing involved," said Donald R. Scifres, SDL's chairman and chief executive officer. "We believe that the SDL pump laser, coupled with the Alcatel module, represents the highest power, highest reliability submarine-qualified 980 nm pump available. In addition, we believe that the numbers of lasers tested and the scale of the testing procedures is simply unmatched by any competitor. Finally, the understanding gained in this testing has allowed us to rapidly develop a revolutionary new pump chip, the SDL 6540, in which we believe a 50 percent increase in output power will be achieved with no degradation in reliability. The SDL 6540 is expected to enter into full qualification in the fourth quarter of 1999, with shipments for terrestrial deployment planned in early 2000."
Jean-Marie Vansteenkiste, Alcatel optronics activity's chairman and chief executive officer added, "This project and partnership with SDL is further evidence of Alcatel's commitment to being the industry leader in submarine components. We believe that our module, with the SDL chip, offers the best combination of high power and submarine reliability in the industry. We are pleased that this pump module will now enable deployment of 32 channel undersea DWDM systems."
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San Jose, California, February 23, 1999-- SDL, Inc. (Nasdaq: SDLI) and Alcatel announced today that they will deliver high power 980 nm pump modules for deployment in the latest generation of undersea communications networks. The high power, high reliability, wavelength stabilized undersea pump modules are built by Alcatel Optronic Division using semiconductor laser chips made by SDL, Inc. The resulting module will allow system designers to apply dense wavelength division multiplexing (DWDM) technology to undersea communications networks to meet the ever-increasing need for telecommunications and Internet traffic bandwidth.
Pump modules are a key component powering optical amplifiers used in DWDM fiber optic communication networks. High power pump modules operating in the 980 nm wavelength range offer significant system cost and performance benefits compared to components previously used in undersea networks. This new generation of pump modules introduces less noise on signals propagating through the optical amplifiers. This low noise characteristic effectively increases the available transmission bandwidth of a fiber optic network. The same characteristic can be used to increase the fiber optic span length between amplifiers, resulting in significantly lower network capital costs.
Alcatel's optical amplifiers using SDL's 980 nm pump lasers have been successfully deployed for several years in terrestrial fiber optic networks. Only recently have these devices demonstrated the exceptional reliability required for use in undersea networks. Alcatel and SDL have worked closely for more than a year to ensure that the performance and reliability of these modules meet or exceed the requirements of the latest generation of undersea fiber optic networks. The culmination of this cooperative effort was an exclusive four-year agreement between Alcatel and SDL for the supply of 980 nm laser chips for use in pump modules for underseas markets. A production ramp in the first quarter of 1999 is underway.
"Alcatel's extensive experience in the design and manufacture of submarine qualified components has been a powerful complement to SDL's world renowned high power laser chip technology," said Jean-Marie Vansteenkiste, chairman and chief executive officer of Alcatel Optoelectronic activity. "In fact, we have exceeded some of our initial performance targets with enough margin to enable additional network performance benefits. We believe we can now offer the highest level of power and reliability available in the undersea market."
The pump module design also features passive wavelength stabilization, a critical performance requirement for wide bandwidth DWDM optical amplifiers. Variations in pump wavelength can cause changes in the amplification experienced by different signal channels transmitted by an optical amplifier. Such variations can seriously degrade system performance and are, therefore, undesirable in DWDM amplifiers. SDL has optimized the laser chip and grating design to stabilize the laser wavelength and thereby maximize pump module performance. According to Donald R. Scifres, SDL's chairman and chief executive officer, "We are very encouraged that our high power grating stabilized laser appears to deliver the best combination of performance, reliability and manufacturability. The close cooperation between Alcatel and SDL for this program resulted in a combination of product performance and time to market that could not be achieved by either company alone. This partnership and contract is part of our ongoing strategy to capitalize on our technology by providing large telecommunications companies with leading edge products to boost throughput on their networks"
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Comments from January 31 conference call:
Q: CIBC world markets: Great quarter. On undersea, ALA is largest. Is number 2 larger than number 1?
A: no. ALA is largest, followed by number 2. Don't provide that amt. of detail
Q: 1450 dist. Raman. Is it ramping faster than we thought. No longer just undersea? Is it for 10 or 40?
A: (Greg) Current work is terrestrial, not just to undersea. At ten and extending to 40. Hesitate to say immediate sales, but we are positioned well for both 10 and 40.
Q: How big can Raman be in 2000?
A: Hard to say how many --- hard to tell when you're at leading edge (terrestrial). We are in production right now for undersea.
Q: Where will submarine sales go?
A: first half they'll be subst. above 30%. Supply vs. demand: bandwidth continues to be hot commodity, particularily with new entrants and as fiber pushes closer to user, demand will outstrip supply for foreseeable future.
Q: split in 980 undersea vers. modulators? Feeling re: what you need?
A: 75% was fiber optics communications, 30% of that was undersea, with cable under 5%. Leaves 40% of total was terrestrial DWDM.
What we would be acquiriing versus dev. internally. Don't think we should comment. Lots of competition. Safe to assume we have interest in any product line vertically, allowing broadening of market penetration. Internally Indium phosophide (?) area and areas I prefer not to mention.
And on tunable lasers:
Q: ML --- expanding product line being a priority. . . tunable laser market? GMs held back. . . can you explain.
A: Source laser and tunable lasers, we have made presentations about 1550 tunable, we do not have a production reactor for these fully operating. We do have them in house. Aim is to make those products production ready. Present focus is on installing mfg. and capacity in those areas. GMs, always positives and negatives: 1) prod. ramp up continues dramatically 2) major effects were incentive plan charges, we had unusually large incentive accruals, 3) standard changes. . . we had to record lower inventory value. . . positive for going forward. . . forecast shows higher margins going forward.
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