From Lightreading.com:
lightreading.com
FEBRUARY 16, 2001
PREVIOUS NEWS ANALYSIS
ONI's Secret Weapon
SAN JOSE, Calif. -- During a week in which snow coated the tops of the
surrounding mountains, there was no doubt that ONI Systems Inc. (Nasdaq:
ONIS - message board) was generating some heat down in Silicon Valley.
Last week, the company blew out earnings expectations and increased future
revenue guidance (see ONI Beats Estimates, Boosts Guidance ). This week, ONI
extended its product line, buying interface technology from Finisar Corp.
(Nasdaq: FNSR - message board) and announcing software that will enable
customers to provision their own optical circuits (see ONI Systems Buys Finisar
Folly and ONI Offers OPTX Portal Package ).
In short, the recently public company is ascending, as some of its startup peers
are slipping and sliding. Light Reading made a visit to ONI Systems this week to
find out what's making this company tick.
For one, there's CEO Hugh Martin, an energetic talker and former Kleiner Perkins
Caufield & Byers entrepreneur-in-residence who bounces around a glass-walled
office framed with drawings of yachts. Martin's vision is a practical one targeted at
extending the edge of optical networks to enterprise networks. He believes
metropolitan optical technologies will open up new opportunities for corporations
to use wavelengths for bandwidth-thirsty applications such as storage area
networks. (Milking the SAN market is the trend du jour amongst optical
networking vendors and VCs -- see Shedding Darwin on Light .)
"Joe Nacchio [the CEO of Qwest Communications International Corp. (NYSE: Q -
message board)] says the biggest opportunity is in delivering fiber to the
enterprise," says Martin. "If all you're doing is fiber relief, it's not a big market."
Then there's the box. Metro DWDM (dense wavelength-division multiplexing) is a
hot market, but there's certainly no shortage of players. What is it about ONI's
approach that can separate it from the crowd? It's clear that the protection and
provisioning features make ONI's DWDM system more interesting. In addition to
offering plain vanilla DWDM channels, the nodes can be strung together in rings
and offer protected channels with 50 millisecond restoration -- essential for the
mission-critical telecom market. In other words, ONI delivers DWDM efficiency
with Sonet-like reliablity.
But after digging deeper into ONI, the key to driving its next stage of growth may
be the company's state-of-the-art manufacturing and testing system. As it
matures and gets tied to Wall Street's brutal quarterly demands, manufacturing
and inventory control will become the most important element of success.
That's where a Canadian, Alain Leclerc, fits in. Leclerc formerly worked at Nortel
Networks Corp. (NYSE/Toronto: NT - message board), where he directed the
manufacturing of the company's now-famous OC192 line.
The defection of Nortel employees such as Leclerc is part of the ongoing legal
battles between Nortel and ONI (see Nortel Sues ONI and ONI Strikes Back ).
From the looks of it, Nortel has reason to be concerned.
Leclerc said he left Nortel because he was ready to do the startup thing. "I
wanted to go somewhere and start from scratch," he said, "I could do some
different things here that I couldn't do at Nortel. Virtual manufacturing is unique to
ONI. There is also the climate, moving from snow to sand, and the potential to
put some money in the bank."
How unique is Leclerc's manufacturing system? Hard to pin down. But ONI's
peers have definitely noticed.
"I think it's unique in the way they integrate everything together," says Bart
Shigemura, CEO and president of Alidian Networks Inc., who is familiar with
ONI's technique. "The manufacturing, operations, and testing is all integrated,
and when the product comes off the line the customer signs and they can declare
revenue right way."
ONI's manufacturing line was indeed humming along during the Light Reading
visit, with dozens of cards plugged into computer-driven tests and a couple dozen
entire systems stacked on trollies headed for the loading dock.
Leclerc's "virtual manufacturing" system ties the company electronically with its
contract manufacturers and suppliers, which include JDS Uniphase Inc. (Nasdaq:
JDSU - message board; Toronto: JDU), iPhotonics Inc., and Pemstar Inc.
(Nasdaq: PMTR - message board). Leclerc and others in ONI manufacturing are
able to monitor, in real time, the manufacturing of their subsystems and
components at their partners' facilities. This includes getting live updates of the
yields on the production line. The companies are also connected by Webcam so
they can engage in live videoconferencing to debug problems in the assembly
process.
"I can monitor the yields and all their measurements," says Leclerc. "All of our
data is going into the same database. So I can do all of the analysis as if it were
happening at ONI."
This process is important because it has led to a close relationship with JDSU,
which is just down the street. JDSU integrates a number of small switch
assemblies for ONI, which are manufactured as subsystems. ONI can sync up
the deliver of the subsystems with its own manufacturing process by monitoring
JDSU's yields online.
It may be products and early customer success that drove a company such as
ONI to IPO. But it's the manufacturing system that drives a company past the
tweezer and microscope stage and wins Wall Street approval. In the last few
quarters, at least, that appears to be central to the ONI story.
Does this mean that ONI's got the metropolitan optical market locked up?
Certainly not. Although Martin is quick to preach the benefits of DWDM versus
Sonet, next-generation Sonet boxes -- such as those from Cisco Systems Inc.
(Nasdaq: CSCO - message board) and Redback Networks Inc. (Nasdaq: RBAK -
message board) -- are selling well. And large, well-funded companies addressing
the core switching market, including Ciena Corp. (Nasdaq: CIEN - message
board) and Sycamore Networks Inc. (Nasdaq: SCMR - message board), are
aggressively pursuing the metro DWDM market.
There are also several startups working on more sophisticated DWDM systems
with dynamic bandwidth provisioning. But in the meantime, with the door to the
IPO market shut, ONI Systems has some time to enjoy its early lead.
-- R. Scott Raynovich, executive editor, Light Reading |
