DFI Investigates Optical Networking: Little Lights at the End of the Tunnel?

Business Editors/Hi-Tech Writers

WASHINGTON--(BUSINESS WIRE)--Sept. 12, 2000

How hot is the optical networking market? Even if only some of the hyperventilating out there about the promise of the all-optical network is true, it is clear that this sector of the "new economy" is blazing.

You don't need to look farther than the money trail for evidence, with top dollar acquisitions -- like Lucent's almost $5 billion buy of no-product start-up Chromatis, and sky high valuations -- see JDS Uniphase with a market cap of almost $90 billion on EBITDA of $31 million.

To cut through some of the noise and clutter in this market is it necessary to compare today's hybrid networks to the all-optical networks of the future. The essential point is that today's hybrid infrastructure (ATM, Sonet, DWDM) is not keeping up with customer demand, and a serious technical and market shakeout is looming as we head toward the still elusive all-optical network.

There are several key components that will help speed the creation of all-optical networks - and if you listen to much of the hype, these products are all but installed. If, however, your intuition tells you that although rapid progress is being made, there is a lot of engineering voodoo and vaporware out there, you are right.

A few key questions, however, can help distinguish the pretenders from the true contenders: Is the component truly optical (or is it really optoelectronic)? Has the technology been proven beyond the lab? Is there any indication that the product will be able to scale?

Seemingly every week, a supplier steps in and announces an all-optical component that is summarily refuted by the rest of the industry. So how can one separate the winners from the losers?

About the only certainty in the market is that the big three - Nortel, Lucent and Cisco - will continue to dominate. Niche players such as Corvis, Altitun and Avanex, however, should play an intriguing role: with inherently more innovative strategies, these companies stand to gain tremendously from the solution of a single optical networking problem.

The big three are already beginning to digest some smaller players, but it is clear that high valuations in the industry will protect many nimble players from getting gobbled up.

This report is one of a new series providing cutting edge analysis of new technologies, players, and market trends to investors and product developers. For a complimentary copy of the full report please visit www.swannstreetventures.com, or contact Michael Snow or Julie Fogarty @ 202/452-6900.

About DFI International and SwannStreet Ventures

Founded in 1984, DFI International provides high-tech start up services including management consulting, value proposition analysis, business plan development and evaluation, competitive assessments, market research, and assistance in securing pre-seed and early stage capital. Areas of expertise include telecommunications, convergence technologies, aerospace, defense industries and other high technology industries.

SwannStreet Ventures, LLC provides pre-seed and seed level capital, as well as consulting services to entrepreneurs and high-tech start ups.