The Lightwave Blog

Posted by Stephen Hardy

As reported by Morgan Keegan's Paul Bonenfant, Opnext President and CEO Harry Bosco yesterday morning told the audience at Cowen and Company's 20/20 TMT Conference in New York that the reason he hasn't executed a previously announced stock buy back is that he's "looking at different things" now that the acquisition price for companies has come down. In particular, he said, he's looking at high-end optics, specifically 40G and 100G module and technology companies. "Some are small and some are fairly significant," he said.

Bonenfant identified Mintera and StrataLight as the two most prominent companies of interest. He believes a StrataLight acquisition is more likely, given the fact that JDSU has invested in Mintera. The fact that StrataLight supplies technology to Nokia Siemens Networks, as does Opnext, doesn't hurt either.

One company that Bonenfant didn't mention that Opnext also might be looking at is CoreOptics. The company is already active in 40G development as well as coherent detection technology for 100G. (See my May 15 blog posting below.) The fact that the OIF has decided to build its 100G DWDM implentation agreement around dual-polarization quadrature phase-shift keying with coherent detection indicates that CoreOptics is moving in the right direction for 100G.

Labels: CoreOptics, JDSU, Mintera, Opnext, StrataLight

Posted by Meghan Fuller Hanna

Last week, I spoke with Kevin Walsh, vice president of marketing for startup Zeugma Systems, about the company's flagship product, the Zeugma Services Node. (See our coverage of the product launch here.)

Basically, the ZSN is a service delivery router that enables service providers to identify and monitor each and every session flow traversing their networks, which, in turn, enables them to better manage and even customize those flows.

One of the potential new sources of revenue that the ZSN's visibility would enable is something Walsh calls "content acceleration," which posits that subscribers would be willing to pay incremental fees in order to enjoy faster downloading of content, specifically video content.

Walsh cites a June 2007 IDC study in which analysts forecast that almost 50% of traffic growth between now and 2012 will be attributable to over-the-top (OTT) video or Internet video services delivered by the likes of Joost or Hulu. "If you're a service provider," he says, "it's this over-the-top video that scares you the most, because it's the source of the greatest growth."

To test its content acceleration theory, Zeugma Systems retained IDC to conduct a survey of 800 U.S. consumers this past March. Respondents were asked a number of questions related to their video consumption habits--and their willingness to pay for value-added services.

"We asked first, would you even be interested in finding, buying, and watching video delivered over the Internet directly to your 50-inch flat-panel television using only your remote control?" Walsh recalls. "In other words, no computer is involved, and this is high-definition video suitable for what we call living-room-quality video."

Thirty-five percent of the respondents said they were very interested, with an additional 41% of respondents indicating somewhat to moderate interest. The question played even more favorably among the 18-34 age group, with 54% of respondents expressing high interest and 41% indicating moderate interest.

But now comes the tricky part: If a movie costs $5 to rent and takes several hours to download, would you pay more for a faster download so you could begin watching that video immediately?

The survey revealed the following:
• 38% of respondents expressed a moderate to high interest in paying an additional $0.25 for faster downloading capabilities, while an additional 18% said they'd be somewhat to moderately interested.
• 14% said they would be moderately to highly interested in paying an extra $1.00 for faster service, while 26% said they would be somewhat to moderately interested.
• 41% of respondents said they would be willing to watch a 30-second ad for the privilege of faster downloads.

"The take-away from this is not how much subscribers would be willing to pay," says Walsh, "rather, that they are willing to pay."

"A lot of service providers are sitting there right now scratching their heads, wondering what sorts of services they can roll out that will generate revenue," he continues. "Here's just one example of the many that consumers are saying they would be willing to pay for."

So now I'm asking the Lightwave audience the same questions: Would you be interested in receiving video content over the Internet straight to your TV set? And would you be willing to pay more to download that video content faster?

Posted by Meghan Fuller Hanna

An interesting press release crossed my desk this morning . . . France Telecom's Orange today announced that it will film and broadcast its first live 3D sports event at next week's French Open.

The trial is set to take place next Monday (5/26) and Tuesday (5/27). Orange says it will use 3D cameras to film all the matches on the Suzanne Lenglen court and broadcast them live. The 3D matches will also be available on VoD until the end of the tournament. At Roland Garros and in its two flagship stores located at Champs Elysées and Paris Madeleine, Orange will be providing its guests with 3D glasses to watch the matches on 3D TV.

The carrier says this trial is "preparing the arrival of 3D television in [its] customers' homes."

While tennis is not really my proverbial cup of tea, 3D sports would be VERY MUCH my cup of tea, and I applaud Orange for upping the ante when it comes to sports broadcasting. How long before the North American telcos and cable MSOs try to use such technology to their competitive advantage? I may be biased, but I can't imagine a better use for all that fiber they've deployed.

Last night's frustrating 103-97 Celtics loss (at home, no less!) notwithstanding, this would have been a great week to watch Boston sports in 3D. Jon Lester's no-hitter was spectacular enough on the flat screen; imagine watching it in three dimensions. Jacoby Ellsbury's diving catch in the fourth would have sent him sprawling into my living room. And how much more imposing would Paul Pierce and LeBron James have looked if last Sunday's nerve-wracking, chest-pain-inducing Game Seven, Celtics v. Cavaliers, had been broadcast in 3D?

Speaking of the Celtics, Verizon announced yesterday that reigning NBA Defensive Player of the Year Kevin Garnett recently completed filming a TV commercial for its FiOS offering. (To view an MPG preview, click here.)



Part of the carrier's "This is FiOS; This is Big" campaign, the ad showcases Verizon's Home Media DVR, which allows subscribers to record a standard-definition program and view it anytime on up to seven TVs in the home, not just the one hooked up to the DVR.

On any other day, that would have been pretty cool. But today Orange announced that it's going to offer a live sporting event in 3D, and to the sports fanatic, that's a slam dunk.

Posted by Stephen Hardy

So where was I? Oh yeah -- scale.

According to Gertel, his customers were looking for Optium to supply a wider range of products, which the company wasn't set up to do efficiently. So merging with a large, complementary company like Finisar made sense.

Both Rawls and Gertel say that these days, size definitely matters. "We think this industry needs a dominant player that has all the answers for the customer," Gertel says. "I think the customer wants a broad supply from a stable company that has the infrastructure and the critical mass to supply all the R&D; that's needed to support them in the long run. We think that's what we've created today."

The merged entity certainly will be big. According to information presented during an analysts' call this morning, the two companies' annual revenue (based on the last reported quarter, annualized) would be $612 million, greater than $544 million JDSU would be expected to garner from its optical communications segment (computed the same way). It would also have the best gross margin 35.3%, non-GAAP) and EBITDA margin (11.3%, also non-GAAP) in the industry. The company would also have the broadest product line.

"All of our customers are big equipment companies, whether they're developing network equipment or telecom equipment. And the end users are all huge companies as well," Rawls concludes. "I think there will always be a place for little companies to get funded to develop a specific technology in a niche product that addresses some inflection point in the market. Those companies, though, if they're going to be successful with these huge customers, they're going to have to be bought or merged or something into some bigger entity. Because they won't be able to scale. It's very difficult for little companies to scale to satisfy the needs of these increasingly consolidated, large equipment companies."

Posted by Stephen Hardy

Alright, so I got off the phone with Jerry Rawls, chairman, president, and CEO of Finisar, and Eitan Gertel, chairman and CEO of Optium, about 15 minutes ago -- and I have a newsletter to put out. So here are few choice quotes about the merger announced today that I promise to come back and flesh out later.

First, the merger was Jerry's idea. "I was on a trip in Europe and I got an email from Jerry and we started from there," says Eitan.

Here's why Jerry called:

"One of the things about Optium was that they were in my view clearly the most attractive partner in this industry because their product lines were so complementary to us and because they were a profitable, successful company. And all of our customers, where we shared customers in common, our customers thought highly of Optium. And there are so many of the potential partners in our industry that you might try to acquire or merge with and either the customers didn't like them, the company was wounded, they weren't profitable, or you had this huge overlap in products that you would have to now rationalize -- or you would lose some of the business at customers because you were competitors, you were both qualified. And Optium was the one company in the industry where that didn't exist. So the combination for us was clearly the best in the industry."

Rawls admitted that he was shopping around. This isn't surprising, given what he told me just before OFC/NFOEC about his desire to expand Finisar's offerings in the telecom space.

From Eitan's view, the deal is all about scale. "Optium was running at a pretty good growth rate, but at some point I looked at this industry and I said that the industry was too fragmented -- there's no critical mass. If we keep growing, even at 30% per year, it's still going to take a few years to get to a critical mass to start making a difference in this industry. So Finisar for us was the perfect company to do this deal with, because there's no duplication of products."

More to come in a little bit...

Labels: Finisar, Optium

Posted by Stephen Hardy

As yesterday's funding announcement pointed out, CoreOptics plans to use part of its $25 million capital influx on new product development. In the short term, that means 40G technology; according to CoreOptics VP of Global Sales, Marketing and Business Development Saeid Aramedeh, a new IC is expected to be announced in the next few weeks, to be followed by the second half of next year by a 40G transponder. A 100G product will follow. The trick for CoreOptics, he says, is timing the 100G introduction in time to meet market requirements without killing the 40G offering's prospects.

The company plans to pair its MLSE-2 electronic dispersion compensation technology -- yes, it's based on maximum likelihood sequence estimation and it's the company's second version of the technology -- with coherent optical receiver/detection formats. (Coherent receiver technology also is being used by Discovery Semiconductor and Nortel, the latter pairing it with dual-polarization quadrature phase-shift keying.)

CoreOptics already offers 40G technology -- it was designed into the platforms Marconi (now part of Ericsson) sold to Deutsche Telekom -- but this part of the company's business represents only about 10% of sales. Aramedeh naturally expects this to grow, albeit slowly.

"Personally, I don't see this happening over the next six months or 12 months. It's probably more of a two-year journey before we see 40G in mass deployment from our perspective," he says.

Which brings us to the dilemma 100G poses. "Certainly if you look at the architecture of 100-gig, it has much promise for being more cost-effective than any 40-gig solution," Aramedeh explains. "So the question becomes if we were to expedite 100-gig delivery, would that make sense and then 40-gig would have a shorter life or never go into mass deployment."

A short tenure for 40G would pose a problem for CoreOptics, Aramedeh implied. "When we look at technologies that are needed to make 100-gig a reality, electronic dispersion compensation is definitely a part of that. And for us, the technology roadmap to support 100 gig goes through 40 -- we have to do 40 and 40 coherent to get the learnings from the experience before we can confidently say what architecture we could implement for 100-gig transmission," he explains.

For now, Aramedeh thinks he'll have enough time with 40G to get 100G right. "From a timing perspective, certainly we don't see that [100G] as an immediate need. And the market is divided on that," he admits. "You talk to some folks and they say, 'You need to go into trials the end of next year.' But for volume ramp, we certainly don't see it before 2011 or 2012."

Labels: 100G, 40G, CoreOptics