Sweetness and light: how the Web has opened up opportunities in optical components
Like every other company touched by the Internet's growth, fiber-optic components makers are going through a sea change. Though some companies are spending billions to make these essential ingredients for tomorrow's networks, carriers are buying up equipment at a pace that puts optical component supply well behind demand.
The need for so many tiny, complex devices to build the Internet's infrastructure has caused many established firms in optics-related businesses to change their course dramatically over a few short years so they won't miss a chance at unprecedented growth. Likewise, even as there's a heightened pace of mergers and factory expansion among the industry's giants, there's never been a better time for well-funded, tightly focused startups to make a charge at this market.THE BASIC RECIPEIt's helpful, though, to first explain what optical components are and where they fit into the grand scheme of the Internet's growth. Optical components are the most basic ingredients in the different optical systems used to move data through glass fibers by light.In general, optical systems, whether used to provide bandwidth to large cities or shoot data across the continent, are made from the same basic materials. And, from the transmission of light to the point where it's received and converted to!
electrical signals, there are d
ozens of components (gratings, dispersion compensators, and attenuators, to name a few) that come into play.To get data across a fiber-optic network, it must first be crammed into a beam of light, created by a laser that sends the data along a specific wavelength. Multiplexers are then used to combine several wavelengths onto a single glass fiber so the data can be transported more efficiently. Next, amplifiers are used to keep the light beams from reducing in strength or separating (resulting in lost or missing data). Then, demultiplexers pull several streams of data out of one light beam. Finally, receivers change the optical signal into an electrical signal so, for example, PCs can use the data.The increased use of the Internet to carry voice, data, and video traffic is causing an insatiable demand for bandwidth. To pump up the data transfer capacity of their networks, carriers are building out fiber optic networks as quickly as they can. Companies such as Cisco (Nasdaq: CS!
CO), Lucent Technologies (N!
YSE: LU), Nortel Networks (NYSE: NT), Alcatel (NYSE: ALA), and others make the optical networking gear needed in these networks.With the exception of Cisco, the companies listed above also make many of the components needed in optical networking systems. Other firms, including Agilent Technologies (NYSE: A), Corning (NYSE: GLW), E-Tek (Nasdaq: ETEK), JDS Uniphase (Nasdaq: JDSU), and SDL (Nasdaq: SDLI), make and sell components to each other, as well as the various optical networking companies.As far as the potential of the market is concerned, even the most conservative analysts are predicting a blockbuster year for components companies. Ryan Hankin Kent (RHK), a telecommunications analysis firm, predicts that the worldwide market for optical components will grow from $6.6 billion in 1999 to more than $23 billion in 2003.Within that sector, the fastest growth is coming from components used to make dense wave division multiplexing (DWDM) gear, which increases the number of wave!
lengths on a single beam of ligh
t. RHK predicts the market for terrestrial DWDM components, which grew 80 percent from 1998 to 1999 to reach $1.4 billion, will become an $8.6 billion market by 2003.Nevertheless, supply problems, along with complications regarding how companies should automate manufacturing for such new technologies, isn't dampening spirits in this business. Instead, the demand is forcing established companies to mutate beyond recognition while opening the doors to a new crop of startups. "We didn't just wake up one day and decide we should go make optoelectronic products," says Donald Scifres, who helped found SDL in 1983. "Still, I've never been in a field where the demand is growing so fast." |
