Here's the WSJ article....
JDSU From the WSJ
A Fiber-Optics Powerhouse
Is Poised to Speed March
By SCOTT THURM
Staff Reporter of THE WALL STREET JOURNAL
Fiber optics is leaving Moore's Law in the dust.
Decades ago, Intel Corp. co-founder Gordon Moore correctly predicted that the number of transistors that could be squeezed onto a piece of silicon would double every 18 months. Generations of faster and cheaper computer chips have driven technological progress ever since.
Now, the amount of information that can be transmitted over a strand of glass is doubling every nine to 12 months. Advances in fiber-optics stand to replace advances in chip speed as the new pace-setter in computing. And if there is a budding Intel of the fiber-optics business, it may be JDS Uniphase Corp. of San Jose, Calif.
JDS Uniphase is among a group of companies that make powerful and precise lasers, amplifiers and filters that underlie the rapidly accelerating advances in fiber-optic technology. The pace of their innovation suggests an era of ever-cheaper pipelines for data, video programming and almost any other digital-information product.
"They and companies like them are really what's enabling this tremendous increase in bandwidth," says Scott Grout, chief executive of Chorum Technologies Inc., a start-up maker of fiber-optic gear and a former researcher at Lucent Technologies Inc. Just as microprocessors have dominated the last two decades, Mr. Grout says, "I believe the next two decades are going to be about connectivity and bandwidth."
Greater bandwidth allows telecom companies to keep up with the explosive growth of the Internet. And lightning-fast connections on fiber-optic networks are reshaping computing by letting computer users store information in remote, central servers and tap that information over the Web from relatively simple devices such as cell phones and personal organizers.
Investors have certainly seen the light in recent months. Start-up makers of fiber-optic equipment with meager sales are going public, or are being gobbled up for billions before completing a single product.
JDS Is Expecting Regulators to Clear E-Tek Acquisition (Jan. 19)
Shares of JDS Uniphase have risen more than tenfold in the past year, giving the company a value of about $60 billion even before its planned $16.5 billion acquisition of fiber-optic component maker E-Tek Dynamics Inc., also of San Jose. That deal was announced on Monday.
The story of JDS Uniphase's rise stands out among the tales of other, much younger, fiber-optics high-fliers. JDS Fitel Inc. and Uniphase Corp., which merged last summer, each had a tortured 20-year history before striking gold. They were led by two immigrant chief executives, who are now co-managing the merged company from 3,000 miles apart.
JDS Fitel was formed in 1981 by four engineers from what is now Nortel Networks Corp., the Canadian telephone-equipment giant. In 1990, the co-founders sold half the company to Japan's Furukawa Electric Co. for access to Furukawa's fiber-optic technology and sales force. JDS Fitel, based in Nepean, Ontario, specialized in building so-called passive components, which manipulate beams of light generated by lasers.
Fiber optics definitely wasn't a hot industry in the early 1990s and that was fine with JDS Fitel. The company deliberately kept a low profile. Its executives were even elated one year when JDS Fitel was omitted from lists of Canada's biggest technology companies. Chief executive Jozef Straus, now president of the merged company, is a Czech emigre and Orthodox Jew well known around Ottawa for his ever-present black beret.
Uniphase, in San Jose, struggled making lasers for chip-making machines and barcode scanners until Australian-born Kevin Kalkhoven arrived in 1991. Mr. Kalkhoven, a scuba diver and jet pilot, says bankers had to "twist arms" to find investors for Uniphase's 1993 initial public offering, which raised all of $11 million.
Fiber optics, in the early 1990s, didn't seem promising. The technology was plagued by an expensive barrier to widespread use: Signals weakened as they traveled over many miles of glass and had to be boosted at regular intervals.
But in 1994, Mr. Kalkhoven found what he thought was the solution and bet his company on it. He was reading a magazine article how about MCI Communications Corp. had used a new type of optical amplifier to send a laser beam from Chicago to Sacramento, Calif., without using expensive electrical equipment to regenerate the signal. With no experience in telecommunications, Mr. Kalkhoven decided to gamble the company by acquiring and developing the technology.
"If it hadn't worked," Mr. Kalkhoven says, "we would have been broke."
That bet paid off, partly because companies such as JDS Fitel and Uniphase, as well as traditional powers such as Nortel and Lucent, began a fantastic game of technological one-upmanship.
Fiber-optic networks work by turning the 1s and 0s of computers into pulses of light. In the mid-1990s, engineers were racing to speed up those pulses. Other engineers devised new technology to split a beam of light into multiple "colors," each of which can carry a separate steam of information. As both the number of pulses and the number of colors grew, the capacity of the network grew enormously.
Ciena Corp. introduced the first commercial system to break light into sixteen colors in 1996. Each color could carry 2.5 million bits of information. Soon fiber-optics companies were splitting light into even more data-carrying colors. Today, suppliers make equipment to break light into 80 colors, each carrying 10 million bits of information, a 20-fold increase in data-carrying capacity in just four years.
The fiber-optic equivalent of Moore's Law calls for innovation to continue at that white-hot pace as new colors are added. Lucent recently said it had developed experimental equipment to break light into 1,022 colors.
In 1998, four years after Mr. Kalkhoven took his big bet, the Internet was creating huge demand for fiber-optics capacity and he was ready to market his technology more aggressively. First he needed the components of fiber-optics networks that he lacked and he found common ground with Mr. Straus.
Their two companies' strengths complemented each other perfectly: One made lasers that create the beam, the other built the devices that moved the beam around. Mr. Kalkhoven and Mr. Straus took off on a three-day hike in the Canadian Rockies in the summer of 1998 to see if they could get along. "We drank a lot of Scotch," Mr. Kalkhoven recalls.
Since completing their merger last summer, Mr. Straus has remained based in Canada and Mr. Kalkhoven in San Jose. But the combined JDS Uniphase has been running hard. Acquisitions have been a big part of its strategy: It has completed or announced seven, including the E-Tek deal. The resulting company now has the broadest array of building blocks for fiber-optic networks, and such a stranglehold over some parts of the market that the E-Tek acquisition likely will face tough antitrust scrutiny.
JDS Uniphase also has eroded the traditional tight vertical integration in the industry, where companies such as Nortel and Lucent made their own parts for the fiber-optic gear they sell to telecom companies.
Still, there are hurdles. In particular, JDS Uniphase will have to get a lot better at manufacturing. Building optical components is still heavily labor-intensive, with workers typically feeding the glass fibers by hand into tiny housings. Filters, meanwhile, are made by applying coatings, individually, to a piece of glass. Each coating can deflect a specific wavelength of light, in much the same way that sunglasses block ultraviolet rays. By applying dozens of coatings, a single beam of light can be broken into dozens of "colors."
But the requirements are so precise that defect rates are high: Only about one of every 20 filters is commercially usable, says Hugh Martin, chief executive of Optical Networks Inc., a start-up maker of fiber-optic switching gear.
And Mr. Kalkhoven is uneasy about comparisons to Intel, whose engineers have put Moore's Law into action, by squeezing transistors closer and closer together on a piece of silicon. "We've mastered the science," he says. But "Intel became great because they learned how to manufacture the microprocessor in large volumes at an economical price."
-- Jim Carlton contributed to this article.
Write to Scott Thurm at scott.thurm@wsj.com |
