Nortel in High Gear in Fiber-Optic
Race
16:47 EDT Monday, September 18, 2000
By Susan Taylor
OTTAWA (Reuters) - You need to picture the cramped
confines of a submarine to appreciate just how far and fast
fiber-optic technology has propelled Nortel Networks
Corp. .
In the company's main optical networks lab in Ottawa --
which sits among a string of buildings bursting at the seams
with 2,600 researchers -- a plaque in a quiet corner of the
room reads ``Das Boot''.
Named after the German film ``Das Boot'', which is set in
a claustrophobic U-boat, it pokes fun at the company's
humble beginnings.
``One of the areas where the early fiber...stuff started was
literally a closet,'' said Dino DiPerna, Nortel's director of
transport product development. ``The guys had to literally
crawl over each other to get around to the next piece of
equipment.''
The only scrambling you are now likely to see at Nortel is
its race to build fiber-optic equipment fast enough to meet
the market's insatiable appetite.
Hailed as a high-stakes gamble in its infancy, Nortel's
fiber-optic push is paying a handsome jackpot as the
world's No. 2 network equipment supplier reaps the riches
of a three-year technology head start.
The company, which last year sold about $5 billion in fiber
optic equipment, suggested this week it may reach
revenues of $12 billion for the year from earlier forecasts
of $10 billion.
Nortel, which develops a range of communications
technologies, including equipment for wireless networks,
switching, transmission and access, is currently best known
for its market-leading fiber-optics systems.
The infatuation with fiber optics -- the science of sending
data as light rather than electronic signals -- lies with its
blistering speeds and massive capacity. Unlike clunky
phone lines that carry information on copper, fiber-optics
systems are built around strands of glass as thin as human
hair.
Despite its delicacy, fiber can carry a massive load of
information packets, whether it is voice traffic from a
phone call, data from a Web site purchase, or a video clip
viewed on the Internet.
``We went after what looked to be near impossible,'' said
DiPerna. Determination paid off in 1996, when Nortel
produced the first fiber-optic system that sent data at a
rapid-fire rate of 10 billion bits, or 10 gigabits, per second.
That is powerful enough, for example, to blast the U.S.
Library of Congress' entire 18-million book collection
from Washington D.C. to Los Angeles in about 14
seconds over a single strand of fiber.
SPEED OF LIGHT
Buckle up, says Nortel chief executive John Roth, the
speed limit is about to increase.
As rivals such as Lucent Technologies Inc. struggle to
keep pace with Nortel's 10-gigabit prowess, Roth keeps
plowing ahead. Nortel is now testing 40 and 80 gigabit
systems.
Long distance phone company Qwest Communications
International Inc. claimed a new Internet speed record in
June using Nortel's 40 gigabit equipment, sending data four
times faster than any existing commercial network. In
October 1999, Nortel showed off its 80-gigabit system at
a trade show.
Faster and more powerful networks are critical to carry
the growing volumes of traffic that are increasingly clogging
the so-called information highway, Roth said.
``We're moving toward the analogy of an airline hub and
spoke model and I'm flying direct, non-stop, New
York-LA.,'' he said in an interview at Nortel's Brampton,
Ontario headquarters. ``Don't put me on the milk run.''
Roth, a sports car buff who recently spent a week's
vacation racing his new Ferrari around a track at 170 miles
(274 kilometers) an hour, is renowned for his relentless
pursuit of speed. A pedal-to-the-metal pace runs
throughout his company.
In the second quarter, Nortel tightened its grip on the
world optical equipment market with a 43 percent share of
sales valued at $11.1 billion in the first six months of the
year. That is up from 28.6 percent in the same period last
year, according to market researchers Dell'Oro Group.
``Being first to market has given them a tremendous
amount of experience,'' said Shin Umeda, an optical
network research analyst at Dell'Oro. ``They weren't
trying to go from zero to 100 like everyone else -- they
were already there.''
Among the challenges for Roth and his team is to stay
ahead of the pack.
Companies such as Cisco Systems Inc., which has been
on a fiber-optic acquisition spree adding such companies
as Cerent Corp., Monterey Networks, and Pirelli Optical
Systems, is fighting hard for a bigger stake of the market.
Cisco, which currently ranks seventh in market share, has
the fastest growing revenue in this segment, at 53 percent.
Optical sales for rival CIENA Corp, which ranks sixth, are
growing at 28 percent, according to the Dell'Oro Group.
Lucent's quarterly growth slipped 10 percent and Fujitsu
Ltd, which is ranked No. 3, posted a gain of just two
percent.
HARD DRIVE EXPANSION
Nortel is injecting $1.9 billion to more than double its
manufacturing capacity and add 9,600 employees over 18
months. That follows a $660 million investment over nine
months in similar production efforts.
At the company's newly-built component and chip plant in
Ottawa's suburb of Kanata, construction has begun on a
second building before the first is fully running.
Crates of costly semiconductor equipment are stacked in a
hallway awaiting completion of ultra-pure clean rooms,
where high-powered filters leave the air with less than 100
particles per cubic meter and water is so completely
stripped of electrical ions that a toaster tossed into a tub of
it couldn't send an electrical current.
``We've typically tripled to quadrupled every year since
we started this,'' said Hans Thunem, a director of
operations for Nortel's optical components unit. ``We're
going to do it again this year and we're going to do it again
next year.''
NEXT STOP CITIES
The market's next bright light will likely be linking buildings
with fiber networks that will allow high-bandwidth
services.
For Nortel, which dominates the long-haul equipment
market between cities, that represents a rich new market,
but one crowded with more competitors.
``Nortel hasn't enjoyed any of this business in the past,''
said Roth. ``Our optical business that we have today is
built on the 20 percent (of data traffic) that's between
cities. There's four times as much into the city.''
It's this kind of market that fuels estimates that Nortel will
reach $40 billion in revenues next year -- a size that has
tripped up larger corporations.
Roth is already on a typically high-speed plan to go
beyond growing pains. He plans to strip down the
corporation and remove the complexities that can limit
growth, shedding products that represent less than a
percent of sales.
``We need to pull the program forward and go up at a
faster pace,'' said Roth. ``We're not talking about doing
this over years -- we're talking about doing it over Nortel
years -- which are only six-months long.''
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