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Technology Stocks : SDL, Inc. [Nasdaq: SDLI] -- Ignore unavailable to you. Want to Upgrade?

To: SJS who wrote (945)	3/12/2000 2:32:00 AM
From: pat mudge	Respond to of 3951

Steve -- I may just go! A good friend has been asked to teach a two-week course in St. Petersburg this summer and asked me to go along since I've never been there. Now, to find out if the dates are the same. This could be fun. . . :) Pat

To: SJS who wrote (945)	3/12/2000 4:51:00 AM
From: pat mudge	Respond to of 3951

MSDW Optical Networking Report Optical Networking Market We define the optical networking market to cover optical transport, metro, interoffice and access. It includes DWDM, but not pure SONET systems. According to RHK, the optical networking market will be worth about $15 billion in 2003. Component Market Size and Growth We believe that the addressable market for optical component companies encompasses four distinct subsegments: the terrestrial DWDM market, the submarine DWDM market, the cable television (CATV) market, and the SONET market. We believe that the components market for these end-markets currently totals about $4.8 billion. The table below shows that the market for some individual components and modules are particularly significant. Note the large market size for EDFA gain blocks, suggesting that the overall market for complete EDFAs is considerably larger. We believe that EDFAs are the largest component by price of modern long-haul DWDM systems. We expect the optical components market to grow strongly over the next five years, as rapid increases in traffic drive the deployment of optical equipment. The core of most large telecommunication networks, certainly in the USA, contain DWDM equipment. Over the next five years, we expect to see DWDM and optical networking equipment spread into the metro and access portions of the network. Much of the cost of optical networking equipment today is accounted for by erbium doped fiber amplifiers. In the future, as the number of network nodes that are optically connected rises, we expect to see rapid growth in the nubmer of transmit and receive modules and passive components used for routing and switching lightwaves. We estimate that the overall optical components market is currently growing at an annualized rate of 80%. We expect it to grow at a CAGR of about 58% between now and 2003. The fastest growing segment is 10 Gb/s components for OC-192 systems. We estimate that it is worth about $90 million in 1999, and is currently growing at over 110%. The market for 2.5 Gb/s components (for OC-48 systems) is about four times larger, but is growing at a slower rate. Table 5 The Optical Components Market for CATV and Telecommunications Component Market Estimated 1999 size Terrestrial DWDM $2 billion Submarine DWDM $1 billion CATV $300 million SONET $1.5 billion Total $4.8 - 5.0 billion Table 6 Estimated Market Size for Individual Components Component Market Estimated 1999 size DWDM multiplexers $400 million of which : $300 narrowband $100 Optical switches $150 million Isolators, attenuators and circulators $220 million EDFA gain blocks $940 million Source lasers (2.5Gb/s and 10 Gb/s $660 million Pump lasers $290 million of which: 980 nm $220 million 1480 nm $70 million Table 7 Optical Component Segment Growth Rates Market Estimated CAGR 1999-2003 Terrestrial DWDM 55% Undersea DWDM 90% CATV 20% SONET 45% Total 58% Table 8 Key Optical Components Growth Forecast Component/Module CAGR of Market by $$, 1999-2003 2.5Gb/s source lasers, modulators and receivers 32% to 34% 10 Gb/s source lasers, modulators and receivers 90% to 102% Pump lasers modules 53% EDFA gain blocks 52% After a long discussion of SONET networks, the next section is called: New Technologies at the Core of the Network DWDM Without SONET Data may be more effectively transported without SONET equipment. A new generation of transport equipment preserves the SONET header as a means of framing data but dispenses with the time division multiplexing and optical-electrical-optical conversions.of SONET equipment. This is known as stripping out the SONET layer. It turns SONET into a protpcol, rather than a type of equipment. Next generation DWDM equipment uses the same approach. Sycamore's SN 8000, for example, uses line cards to frame incoming ATM and IP traffic with SONET frames, but then transports the data on wavelengths and has the intelligence to add and drop wavelengths within the network. The advantage of removing the SONET layer is immediate: the need for expensive ADMs is eliminated. Instead of having a traffic cop for every lane of the highway at each exit (a SONET ADM for each virtual ring at each node), the service provider uses a single traffic cop (one DWDM box with ATM and IP line cards) to manage all the lanes. Ultra Long Haul Systems Point-to-point DWDM systems without SONET equipment have become widely accepted in the marketplace, we believe. Vendors of long haul systems are now turning their attention to ultra-long haul products. These systems extend the range before signal regeneration is required from 600 km to above 4000 km by using Raman amplification. This cuts the number of line cards and DWDM terminals (which account for about 70% of a system's cost) by a factor of 5 or 6, and increases the number of amplifiers required. (This should benefit providers of erbium doped fiber amplifiers.) Of the established DWDM vendors, only CIENA has announced an ultra long haul version. CIENA's ultra long haul CoreStream product should be available in the 1Q/2000. The leading start-up developers are Algety, Corvis and Qtera (acquired by Nortel). Ultra long haul technology is an important cost-cutting development, and first-movers in the large long distance market should have a considerable advantage. We do not regard it as transforming the optical networking market, however. On the contrary, like SONET over DWDM, we expect ultra long haul systems to become more commoditized over time. The fundamental change to optical networking, we believe, should come from "intelligent" optical networking. Intelligent Optical Networking Getting rid of SONET boxes in the network brings another significant advantage. SONET ADMs involve optical-electrical-optical conversions. Once SONET has been eliminated, a network operator may try to keep traffic in the optical domain. The operator may even offer wavelengths to its customers. For example, an operator could offer an OC-12 channel over a shared fiber between New York and Los Angeles. Service providers such as Williams Communications and Qwest are moving in this direction.