Key from article "Most of the public companies in the component space will report even more revenue drops over the coming quarters, the report predicts. Some will go bankrupt, and others will be caught up in the merger and acquisition activity required to restore balance to the market. The sector's startups also will be caught up in a painful metamorphosis. Some will go under, as VC funding becomes increasingly tight. Others will accept depressed buyout valuations to avoid hitting the cash wall.
The report postulates that the component companies that are most likely to emerge successfully from the doldrums are those that accurately anticipate the requirements of the service provider market. Right now, it points out, the last thing service providers need is component technologies that simply add more capacity to their networks:
"The market is nowhere near ready for 40-Gbit/s systems... Optical Oracle's survey found absolutely no interest in moving to [40-Gbit/s] OC768. Indeed, carriers have yet to fully standardize [10 Gbit/s] OC192 long-haul configurations."
"Having built their networks on the idea that bandwidth alone would meet customer demand, many providers are finding themselves unable to generate revenues from this capacity," explains Chris Bulkey, Optical Oracle's financial analyst and the author of the report. "In this environment, it's not component technologies that increase the speed of the network that will sell well, but those that allow more efficient and profitable use of existing optical capacity."
Among the growth areas mentioned in the report are arrayed waveguide gratings and interleavers that let systems carry more data over installed fiber. Vendors in this space include Lightwave Microsystems Corp. and Oplink Communications Inc. (Nasdaq: OPLK - message board). Another growth area is optical amplifiers that are optimized for the metro environment, typified by Genoa Corp., Kamelian Ltd., and Opto Speed SA. Also rising in importance are tunable components, from companies such as Bandwidth9 Inc. and Cidra Corp. (Nasdaq: CIDC - message board).
The report also includes earnings forecasts, a detailed explanation of component technology hot spots, and a ranking of the top 10 best-positioned public companies in the sector. It is available to subscribers of Optical Oracle.
-- Mary Jander, Senior Editor, Light Reading
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