Dee Jay,
If you liked that article, check this one out from Money Daily:
Tuesday, November 5, 1996
Optical fiber is red-hot, but manufacturers are no sure bet for
investors
The potential spoiler: wireless communications
by Lloyd Chrein
No matter how you splice it, fiber optic cable is a hot item. Competitors in the U.S. telecommunications industry need it to speed phone
connections. Corporations are demanding it to quicken data transmission. Foreign countries are beginning to install it, connecting people who
have never spoken on a telephone in their lives. And the handful of optical fiber makers can't keep up with the demand.
Yet while manufacturers and supporters of the technology feel the good times have only just begun, analysts who watch the main manufacturers
of fiber optics -- Lucent Technologies (NYSE: LU) and Corning Inc. (NYSE: GLW) -- are at odds over whether investors should bet any part
of their fortunes on the technology or those who make it.
"In discussions we've had with the CEO of Lucent [Henry B. Schacht], he indicated that he feels fiber will continue to get closer and closer to the
home -- that instead of copper wire in homes we will have fiber optics," says Walter Piecyk, an analyst with PaineWebber. "But we're less bullish
on that, because we think other technologies such as wireless communications will play a part. It's part of the future, but it's not the whole
picture."
Optical fiber transmits information using light, rather than electricity. This gives it the capacity to carry thousands of times more information than
copper wire, which is still found in many telecommunications networks and in virtually all homes. According to the Corning Web site, "two
strands of fiber can carry more information than a bundle of copper wires four inches in diameter," and "it would take 33 tons of copper to
transmit the same amount of information handled by 1/4 pound of optical fiber."
The worldwide market for fiber optics in 1995 was about $2 billion, says Thomas A. Soja, a senior analyst at KMI Corp., a Newport, R.I.,
market research firm specializing in fiber optics technology. Buyers include the telecommunications industry, cable television operators, utilities,
municipalities using it for intelligent transportation systems on highways, and corporations and developers that are wiring new and existing
buildings for high-speed, high-volume data communications.
The biggest potential market is in developing countries, such as Russia and China, which have antiquated or non-existent phone systems. Lucent
claims that 60% of its projected revenues over the next 10 years will come from outside the United States. "The irony is that the developing
nations will have the best phone networks in the world," says Robert P. Mohalley, a vice president at Lucent.
That has translated into about 40% annual growth for the optical fiber divisions of the top two players: Corning, which commands about 33% of
the worldwide market; and Lucent, the newly created spin-off of AT&T, which has 17%, according to KMI. Other manufacturers include:
Alcatel, which is based in France and has a 9% market share; Pirelli, the Italian tire maker; and three Japanese manufacturers, Sumitomo,
Furikawa and Fujikura. There's also a small U.S. manufacturer called SpecTran Corp. (NASDAQ: SPTR), which has been thriving by picking
up overflow assignments from both Corning and Lucent.
Demand has been high enough that both Lucent and Corning are pumping money into increasing manufacturing capacity. Lucent began expanding
in 1991 and plans to spend $300 million by the year 2000. It has already increased its production capacity by 500%. Corning is building new
facilities in Wilmington and Concord, N.C., and plans to double its capacity by the year 2000, says spokesman Paul Rogoski.
For some analysts, this signals good times ahead for all players. "There's no question that the demand for fiber is exploding and that it will
continue to explode," says Philip Sirlin, a telecommunications analyst with Schroder Wertheim. "That's good news for Corning, where producing
the glass for the inside of the cable is most of the business. It may be even better news for Lucent, which also makes different components of
fiber optic systems. All the areas surrounding fiber optics are ramping up."
According to KMI, the total worldwide revenue from fiber optic peripherals, such as connectors and terminals, was about $4 billion. At Lucent,
that has meant that "the growth in optical-based components to match the glass at the endpoints is keeping pace with fiber," says Mohalley. "With
optical cable we're building brand-new highways, but with optical electronics we're also building the exit ramps."
Good as that sounds, PaineWebber's Piecyk is still bearish on the future of fiber optics, and the fly in the ointment is wireless telecommunications.
"We've placed Lucent stock as a neutral, or hold," he says. "It has a strong wireless showing, but it's a smaller part of the business. Looking
forward, companies that show a higher percentage of business in wireless will fare better."
Indeed, wireless may be the spoiler, admits Soja. "It's the big unknown," he says. "It's a quick way to implement telecommunications. East
Germany, which had no entrenched base of copper wire, used it to get up to speed quickly. But optical cable and wireless may also be able to
work together, with the cable connecting wireless stations. Nothing is for certain."
For more Web-formation, visit:
AT&T
Corning
Lucent
SpecTran |
