Big Day Looms in Offering by Developer of Optic Links
By SETH SCHIESEL
New York Times October 22, 1999
When Cisco Systems Inc. agreed to acquire the Cerent Corporation in August for
almost $7 billion, many everyday investors had a common reaction: What is Cerent?
They may well have a similar feeling today because another small company,
little known beyond Wall Street and the tightly knit communications fraternity,
Sycamore Networks Inc., appears set to make a big financial wave, only this
time investors will at least have a chance to catch it.
Sycamore is expected to raise more than $280 million in an initial public
offering today. Last night, the issue was priced at $38 a share, which would
give the company a market value of about $3 billion. It is possible, however,
that by the end of today Sycamore's value will surpass even the price paid for Cerent.
Anticipation surrounding Sycamore's offering has been mounting on Wall Street
for weeks because the company is perhaps the leading member of a new breed of
companies, including Cerent, that are developing the next generation of optical networking technology.
It is also the first to offer stock to the public.
The explosion in demand for data communications generally and for Internet
services specifically has required old-line communications carriers to retool
and expand their networks and has prompted new carriers to design their
networks for data from the ground up.
After the development of suitable optical fibers in the 1970's, initially by
Corning Inc., the major long-distance carriers deployed fiber optic
transmission systems in the 1980's to replace older copper-wire systems,
largely as a way to cut costs.
As companies like the Nortel Networks Corporation of Canada and Fujitsu of
Japan developed ways to transmit more and more pulses a second, the Ciena
Corporation, which went public in 1997, helped lead perhaps the biggest
qualitative leap in optical technology in two decades: transmitting multiple
wavelengths, or colors, of light simultaneously over a single fiber.
Today, the dominant optical communications technology is known as Sonet, for
synchronous optical network, and though the latest Sonet networks can transmit
billions of bits of digital information a second, they are inflexible in some
ways. While optical technology has been widely used to transmit large amounts
of data from one point to another, the network intelligence that determines
what goes where and that creates services that people actually use has remained
stubbornly in the domain of semiconductors and copper wires.
Not coincidentally, the new breed of optical communications companies has come
along to help change that just as the big communications carriers realize that
the data explosion requires them to revamp their networks.
"There really is a connection between what investors read about the Internet
and the growth and opportunity for these optical companies," said Mary Henry, a
communications equipment analyst for Goldman, Sachs. "It's really the explosion
of data traffic driven by the Internet that requires this migration to optical
technology."
Most consumers now think about network bottlenecks in terms of what is often
called "the last mile," referring to the slow data links to most United States
homes. But as more consumers get high-speed access to cyberspace through cable
modems, the high-speed phone line connections known as digital subscriber
lines, or perhaps wireless links, that will place additional demands on core
communications networks.
"The stone wall is an access problem today, like you and I not being able to
get access at the speeds you want," said Frank Dzubeck, president of
Communications Network Architects, a networking analysis and consulting firm in Washington.
"When we get it from D.S.L. or cable modems, it pushes the stone wall back into the network.
If you can't make the developments to handle that, you're left with the same problem."
Among those developments are new ways to add and remove traffic from
traditional Sonet fiber optic systems more efficiently, technologies that could
allow future networks to be designed in ways that are more flexible than the
somewhat rigid ring configurations required by Sonet and, eventually,
communications switches that operate totally optically.
The roster of companies trying to develop these technologies is well known to
venture capitalists and to the bigger communications companies like Lucent,
Nortel, Cisco and Ciena that have been acquiring their peers, but to few people
outside the industry. In addition to Sycamore, based in Chelmsford, Mass., the
roster includes Astral Point, Chromatis, Corvis, Optical Networks Inc., Qtera and Tellium.
"At the basic technology level, the challenge is: Can you get the basic product
done, in a quick time to market and hit your price point?" said Richard W.
Barcus, Tellium's president. "The second layer of accomplishment is: Can you
establish relationships with the customers, the service providers, and can you
articulate the value of your products to help them solve their problems?"
As Sycamore articulates its value to both customers and investors, its hurdle
has been made much lower by the pedigree of its top executives, Desh Deshpande
and Daniel E. Smith. Deshpande and Smith were the top two executives at the
Cascade Communications Corporation before that company was acquired by Ascend
Communications Inc. in 1997 for $3.7 billion. Cascade's products proved
critical to Ascend and were perhaps the main reason Ascend was subsequently
acquired by Lucent for $20 billion.
Citing "quiet period" regulations related to its stock offering, Sycamore declined to comment.
The company hopes to complete its initial product line by releasing a fully
optical switch in the first half of next year and appears close to announcing
an agreement with Siemens of Germany under which Siemens will help distribute
Sycamore's products internationally, according to executives close to the
companies. Sycamore's two customers so far are Williams Communications Group
Inc. of Tulsa, Okla., and Millennium Optical Networks Inc., a small local
communications company in New York. |
