I think the voting has already ended. Thanks for the kudos, just the same.
More on Wu-Fu Chen's keynote from tonight's Wall Street Journal:
August 4, 2000
Hot Fiber Optics Industry Attracts Investors, Scientists
By RICK JURGENS
Of DOW JONES NEWSWIRES
PALO ALTO -- Business and job opportunities in the booming fiber optic network equipment industry drew an overflow crowd to a conference here earlier this week.
"We measure our success one billionaire at a time," investor Wu-Fu Chen said in a speech to Opticon 2000, a gathering of about 2,800 engineers, marketers, company executives and investors.
Here's another measure: David Pace, business development vice president for Business Communications Review, Westmont, Ill., which sponsored the event, said the original attendance goal was 1,000.
The growth of the Internet has sparked a fiber optic building frenzy. Last year, total spending on fiber optic equipment topped $12 billion, up 56% over 1998, according to RHK, a South San Francisco, Calif., telecommunications market research firm. Chen sees every segment of the industry posting compound annual growth rates in a range from 30% to 100% over the next three or four years.
Sagie Tsadka, a technical group manager for Applied Materials Inc. (AMAT), came from Israel to see what fiber optic products are currently being sought by network operators. The industry is "the hot area for physicists," he said.
After three years developing electro-optic components for semiconductor testing equipment at Applied, Tsadka plans to move to a company where he can work instead on fiber optic network components. "There are many opportunities to be innovative" and new technologies get a quick response in the market, he said. "The money is there and the customers are there."
In fiber optic networks, signals are transmitted by sending light waves through strands of fiber. Such networks have much greater bandwidth, or signal capacity, than most existing networks, which send electricity through copper wires. Fiber networks are also less susceptible to electromagnetic interference.
The market has taken note of the industry's potential. Reminiscent of the recent rocket ride of dot-com valuations, traditional price-to-earnings ratios no longer seem to matter to fiber optic investors. Many companies in the industry post losses or minuscule earnings, and stocks are priced at multiples of revenue.
Even by that measure, the prices are high. SDL Inc. (SDLI), a fiber optics components maker with sales of $289 million over the past four quarters, was valued at $41 billion in a takeover offer from JDS Uniphase Corp. (JDSU), the industry leader. That deal is still pending. JDS, with $1.4 billion in sales, has a market capitalization of $91 billion.
Smaller components makers also command high premiums. Finisar Inc. (FNSR) has a $4.1 billion market cap on sales of $67 million; Stratos Lightwave Inc. (STLW), $2.3 billion on $73 million; New Focus Inc. (NUFO), $6.1 billion on $38 million; and Avanex Corp. (AVNX), $8.3 billion on $41 million.
'Torrent Of Liquidity'
Dan Smith, chief executive of Sycamore Systems Inc. (SCMR), a fiber optic equipment maker with a market cap of $30.3 billion on sales of $120 million, said the industry has seen "a torrent of liquidity. There is a tremendous amount of money out there waiting to get to work." Some valuations would require that a company capture more than a 100% share of their target market in order to support the stock price, he said.
Chen, a former colleague of Smith's at Cascade Communications Inc., voiced similar misgivings. There are too many startups and too many dollars seeking investments in the industry, he said. Picking the right company is crucial, and investors confused by the industry's complex technology will have to base their choices on their assessment of a company's financial backers and management, he said.
Still, Chen - who has launched more than a dozen successful startups over 15 years and is currently chairman of five small fiber optic companies - sees room for a lot of short-term winners in the fiber optic components sector. That's because demand from equipment makers continues to outstrip the supply of components, so that "any (new product) that can work reasonably well will find a market," he said.
Eventually, competition is likely to drive down prices and margins for components makers, as has happened in other high-tech hardware industries, he said. But for now, although components makers must rely on labor-intensive manufacturing processes and endure low yields of usable products, demand is strong enough that those costs can be passed on to customers, he said. Also, new competitors face high barriers to entry, including a shortage of scientists and engineers with graduate degrees, he said.
Chen also sees a big opportunity for the company that can eliminate or reduce the need for regeneration stations in the "long-haul" fiber optic lines that connect cities thousands of miles apart. Such stations are required every 200 to 400 miles because with current technology, light waves can't travel through fiber beyond that distance without deteriorating. Regeneration equipment adds as much as $300 million to the cost of a fiber optic link between New York and Los Angeles, he said.
Chen said no regeneration-free systems are operational yet, but they are being developed by two companies: Nortel Networks Corp. (NT) and Corvis Corp. (CORV). |
