for history buffs and those who like myself are less technically telecom inclined, today's washington post bidnez section has a nice lengthy frontpage feature on ciena's origins and yesterday's deal. note: author not to be confused with rem's bassist and occasional man on vox. further note: if it's too protracted for you, at least read the bit about the cd player.
Thin Lines Lead To a Pot of Gold
Ciena's Tale: Reeling In $7 Billion With Fiber-Optic Strands
By Mike Mills
Washington Post Staff Writer
Thursday, June 4, 1998; Page E01
"If you could do that, it would be like putting a pot of gold on my desk."
That was the advice George Fuciu, president of technology services at Sprint Corp., gave to Larry Huang four years ago. Huang had befriended Fuciu at church in Atlanta and was seeking advice on whether the company Huang was joining, Ciena Corp., could find success with a new device that could greatly increase the capacity of fiber-optics communications links.
Yesterday Huang, along with three other Ciena co-founders, found their own pots of gold filled to the brim. The fast-growing Linthicum, Md.-based company announced yesterday it would be sold for $7.1 billion to Tellabs Inc., a telecommunications equipment maker with headquarters in Illinois. The deal puts a 14 percent premium on Ciena's shares, boosting each founder's already large fortunes by millions of dollars.
Huang and business partner Steve Chaddick had been looking to join a new upstart company back in 1994, having just sold a successful satellite venture to AT&T Corp.
They found their way to David Huber and Patrick Nettles, who were trying to commercialize some patents that optical engineer Huber had taken with him upon leaving General Instrument Corp. in Philadelphia in 1992. From a Dallas hotel suite, Huber and Nettles had spent months devising a business plan, with aid from the Texas venture capital firm Sevin Rosen Funds.
But Huang had his doubts. "In the satellite business," he said, "it's nothing to beam hundreds of channels of information to earth." Was it really a big deal, Huang asked his friend from Sprint, if Ciena did the same thing with fiber optics?
The "pot of gold" explanation, recalls Huang, convinced him.
At that time, a hair-thin strand of optical fiber was typically carrying 32,000 simultaneous phone calls at the speed of light, which was more than adequate capacity back when voice calls dominated the nation's communications networks. But the explosive growth of data communications soon began to eat up that capacity, forcing large telecom carriers to invest billions laying new fiber-optics cables.
There was a more economic way, the partners reasoned: Find a way to tap the vast capacity residing inside each fiber strand that the technology of the day simply wasn't using. They thought of it as a radio that plays only one station. The computerized bits of information traveled, in the form of pulses of light, only over one narrow frequency, leaving dormant limitless transport space above and below that channel. Huber had patented a way to split the light paths into different colors, or "channels," thus vastly multiplying a fiber strand's information-carrying capacity.
In this way, Ciena is helping bring on the next wave in network technologies, known broadly as optical communications. "Within 10 years, the all-optical network will be thousands of times more cost-effective than electronic networks," futurist George Gilder wrote recently. "Just as the electron rules in computers, the photon will rule the waves of communication."
Huber left the company a year ago to pursue other ventures; company officials say it was an amicable parting.
Though none of Ciena's founders is from this area, they decided to set up their company along the Baltimore-Washington corridor. That location allowed Ciena to be near to the Washington area's technology corridors, as well as Baltimore's pool of factory workers, many of them looking for new jobs after defense cutbacks.
Through Huang's relationship with Fuciu, Sprint became Ciena's first customer. Its test product, which multipled fiber capacity by a factor of eight, made its debut on Sprint's fiber-optics long-distance network in April 1996. Ciena's first commercial product, a 16-channel box, soon followed, boosting capacity to about 500,000 simultaneous calls along a single fiber strand.
The company went public in February 1997, selling shares for $23 in what was the biggest initial public offering of a startup company in history.
Today, Ciena is selling a device that multiplies fiber capacity by 40. And its latest product, to go on the market later this year, squeezes 96 times more capacity out of a strand, or 3 million voice calls. But competition in the "wave division multiplexing" business is fierce, and includes such giants as Lucent Technologies Inc., Northern Telecom Inc. and Seimens AG.
Ciena also caught the attention of WorldCom Inc., the Jackson, Miss., long-distance carrier. But WorldCom officials worried that Ciena lacked the manufacturing ability to meet its demands. So Ciena took a chance by spending millions to greatly expand its factory and by hiring hundreds more employees without the certainty that WorldCom's orders would follow.
They did. But earlier this year, WorldCom turned the tables, announcing that it would slow down its purchases of the equipment, having found that WorldCom couldn't keep up with its installation schedule. Ciena's stock took a big hit, but it has recovered since the company announced it had new customers in AT&T, Cable & Wireless PLC and Bell Atlantic Corp.
The four-person company that Huang joined in 1994 today employs 1,300, half of whom are in Ciena's manufacturing plant. The facility combines the clean-room environment of a silicon chip plant with the bench-station assembly process of an old toy factory.
With Pentium computers at every work station, workers use mouse clicks to guide them through each stage of the assembly process. The nonunion staff, many of them laid-off industrial workers and former defense-contractor employees, each have stock options in the company.
The fiber-optics amplifiers they build, each about the size of a 1970s-era stereo amplifier, are passed on trays from one station to the next, with quality control monitored by computer at every step.
The slightest imperfections can degrade the quality of signals that pass through the amplifiers.
Operations director Andrei Csipkes recalled one day recently when performance measurements were slightly below normal at one work station. It turned out the worker was listening to music on a portable boom box, and the sound vibrations were interfering with the fusing of glass fibers inside the product.
Rather than banish music, Csipkes installed CD players in each work station's computer, complete with headphones. Gospel, country and R&B discs now sit alongside specialized assembly tools. "Our productivity has gone up since the moment we put in the CD players," Csipkes said.
Tellabs chief executive Michael J. Birck is betting that Ciena will continue to prosper. Data traffic is doubling every 100 days, spurred by growth in Internet use.
Ciena's future is secure, Huang said, because there is no apparent limit to the amount of data that can be packed into a strand of fiber.
"We haven't even begun to tap the information carrying capacity of the optical fiber," he said. "Ninety-six percent of the capacity is still underutilized."
CIENA'S CARRYNG POWER
Ciena develops and makes products that help carriers exploit fiber bandwidth -- enabling them to carry more calls and data over their networks. Here is how the capacity of one fiber-optic strand has grown:
Pre-1996
32,000 non-aided simultaneous voice conversations
April 1996
256,000 conversations; eight channels
Late 1996
512,000 conversations; 16 channels
Early 1998
1.3 million conversations; 40 channels
Summer 1998
3 million conversations; 96 channels |
