JDSU-related stuff (3 items)
1. CC Notes
Message 14114502
2. Bizarre Schwab notice posted after close:
"JDSU (JDS UNIPHASE CORPORATION) was trading in "fast market" conditions at the end of the regular session on 7/26/2000. The stock's bid and ask prices were locked (i.e. the bid and ask prices were the same) from 3:52 p.m. Eastern Time through the market close at 4:00 p.m. Market and market-type orders entered during this time period will receive a Nothing Done report, as the security was trading in a locked market." (I had an options market order filled at 3:56, however, so go figure...)
3. The latest chapter of the Photonics Tutorial
(for previous ones, see Message 13897280; I seem to have missed the fourth, sorry)
Photonics Revolution V: Terabit Routers
[BRIEFING.COM - Gregory A. Jones] In Part IV, we were fortunate that our coverage of optical components coincided with the JDSU/SDLI merger announcement. We get lucky again in Part V, as our look at terabit routers comes just ahead of the Avici Systems (AVCI) IPO. As has been the case since the start of this series, we remain in the core of the telecommunications network with terabit routers, though we are now moving to the intelligent part of the core.
Note: Briefing.com subscribers can access parts I through IV of the series via the links below. If you are not a subscriber, please take a free trial at www.briefing.com so you can access our Archives.
Photonic Revolution I: The Fiber Landscape
Photonic Revolution II: DWDM
Photonic Revolution III: Optical Switches
Photonic Revolution IV: Transmission and Components
Thus far, our discussion of the optical network has dealt primarily with the transport layer of the network -- the fiber itself, the equipment that delivers optical signals on many different wavelengths of a fiber strand and keeps those signals going over long distances without regeneration, optical switches which map streams of voice and data from one wavelength to the next, and the components that make all of this possible.
The common thread through these pieces of the optical network is that they are focussed primarily on transporting optical signals long distances -- they are the interstates of our communications network. But ultimately, those signals need to get somewhere. When you get off the interstate, you still need help getting home. That's where the terabit router comes in -- this is the network layer.
Smart Enough
Though an important piece of the optical network, the terabit router is not an optical piece of equipment; it is electrical. As we have noted before, we are many years away from seeing equipment that is capable of looking into an optical signal and gathering information about the packets of data travelling through the network; hence the characterization of the optical network as dumb. But we have years of experience in intelligent networking in the electrical realm. A router can determine the most efficient path for packets to travel between two points regardless of how many links lie between those two points.
Internet data traffic uses Internet protocol (IP), in which data is delivered in individual packets and then recombined at the destination. Where as voice traffic based on traditional circuit-switched technology does not require much intelligence as it simply occupies a circuit for the duration of the call, IP traffic demands considerable intelligence.
But Not Fast Enough
Terabit routers can deliver that intelligence, which is why they are a critical part of the booming data traffic segment of the telecom network. The question mark for terabit routers is speed. Despite their name, no commercially available router currently delivers terabit speeds. This is the critical issue for the service providers that want to buy these routers. They are now deploying OC192 fiber that delivers 10 gigabits per second over 40 channels (thanks to DWDM technology). That's 400 Gbps of traffic, and that's only the beginning. OC768 fiber at 40 Gbps is coming soon, and DWDM systems are scaling to 80, then 300 channels, and beyond.
Unfortunately, terabit routers are not yet up to the task. It's tough to pin down accurate numbers due to the tendency for companies to announce products they don't actually have and to double-count (count bandwidth coming in and going out, kind of like the Nasdaq counting a purchase and sale of a security as two transactions). But the current numbers stack up this way: Juniper's new M160 delivers 80 Gbps, while the Cisco GSR12016 delivers 75 Gbps. That's a long way from the terabit speeds that service providers want.
Yet even if it's not the terabit speed that they want, service providers still need these routers. Fiber bandwidth is exploding and demand for IP traffic is exploding, and currently the best way to get IP traffic through the fiber and to the end user is with a terabit router. Juniper's sales rose 77% sequentially to $113 mln in the June quarter, and it only owns about 20% of the market. Cisco owns the lion's share of the other 80%.
Avici Enters the Fray
So what's left for Avici Systems? In Q2, not much -- about $2.2 mln in sales according to its S-1 filing. But as with the slew of public and private contenders for the terabit crown, Avici believes that it has a better product. Its TSR router claims to deliver 100 Gbps. The rest of the field includes public powerhouses such as Lucent (LU), which acquired terabit router start-up Nexabit last year, as well as Nortel (NT), Tellabs (TLAB), Ericsson (ERICY), and Alcatel (ALA).
As if that weren't enough, the private space includes hot names such as Ironbridge, Charlotte's Web, and Pluris. Ironbridge is working on a terabit router with an optical fabric, and the Charlotte's Web router will support TDM connections that allow for reliable voice delivery as well as data.
In short, the terabit router sector is booming, but so too is the competition. With optical routers still years away (if ever), electrical routers will unquestionably see tremendous growth over the coming several years as IP traffic soars. And with service providers looking for any technological edge they can get, a superior technology can find a market. Cisco and Juniper have owned the router market, but they will face serious challenges ahead. Avici is only one of many.
Avici's IPO price range has already been hiked to $28-30 from $18-20. At the $30 mark, Avici's market cap would be $1.4 bln and it's a safe bet that it will end up much higher than that after the first day of trading. There are a laundry list of risks in the Avici S-1 and rightfully so, but the bottom line from a market perspective is that the terabit router space is hot, and there is currently only one pure-play public company: Juniper. The simple law of supply and demand (more on this below) suggests that Avici will do exceptionally well out of the gate.
Parting Shots: IPO Special
Two other optical plays going public this week. The hottest property is Corvis (CORV), which we have already covered in a Story Stock on Monday. Corvis specializes in long haul transmission gear that can extend the distance that an optical signal can travel without regeneration to 3200 km from the current 400-600 km range. Corvis is also working on an all-optical switch. As with Avici, the price range for Corvis has been hiked substantially. At $30, the top of the price range, Corvis will have a $10 bln market cap, and it will end the day much higher.
The other IPO is Tyco spin-off Tycom which priced at $32, above its upwardly revised $26-30 range. Tycom develops and maintains undersea fiber networks, and is a competitor of Global Crossing (GBLX) and 360 Networks (TSIX). Though we like this sector, the market still has concerns about an eventual bandwidth glut, and has been relatively cool to this group of late. As such, Tycom's reception will not match that of Corvis or Avici.
One note of concern about the optical sector....though the optical business is going great (witness the JDSU earnings report), optical stocks are on another planet altogether. Just as the Internet sector in its infancy (Netscape, NetCom etc), etail, and B2B all enjoyed a period when stock prices were driven by supply and demand more than fundamentals, so too are optical stocks trading like commodities. But with these IPOs, supply is slowing catching up with demand, and these frothy conditions won't endure forever. Many of these companies will grow into their valuations, but others won't, particularly given the private equity capital flooding into the sector. Be careful as the supply increases -- many second tier optical stocks will suffer when supply and demand come into balance. Greg Jones - gjones@briefing.com
tekboy/Ares@kingsdon'tsuck.com |
