A billion here, a billion there ... it's all serious money in the optical-networking industry.
Cisco Systems, Nortel Networks and Lucent Technologies collectively have spent at least US$23 billion to acquire eleven optical-technology start-ups since January 1999. And the trio appears to be scouring Silicon Valley, New England and Europe for more optical expertise.
Many of the gold-plated babies don't even have products in beta testing yet. But networking giants believe it's cheaper and faster to buy start-ups than to develop optical technology in-house.
Optical gear converts data, voice and video into beams of light for high-speed transmission across regional and global networks. The potential demand for such devices is massive. Optical-related networking sales currently range between US$50 billion and US$80 billion, according to Carl Russo, VP of Cisco's Optical Networking Group (ONG).
Still, history shows that some big networking bets go bust. IBM spent about US$100 million on ATM in the early 1990s but failed to make it a corporate standard. Yet optical networking could succeed where ATM stalled, because customers, not vendors, are driving demand. "Worldwide bandwidth demand will increase 100- to 200-fold in the next four to five years," says Don Smith, president of Nortel's Optical Internet Division.
Lucent, meanwhile, points to research from Pioneer Consulting, which predicts the demand for optical-based metropolitan-area networks (MANs) will grow 61 percent annually through 2004.
Cisco, meanwhile, has spent US$10.48 on optical deals for its ONG group. "We've announced expectations of a US$1 billion [annualised] run rate next quarter," notes Russo. By next fiscal year, "we expect to hit US$2 billion, excluding Qeyton," the acquisition of which has not yet closed.
ONG includes three business units, each composed of acquisitions. The Optical Transport BU includes Pipelinks and Cerent, selling to long-haul carriers such as Worldcom and Cogent Communications, which is delivering T3 directly to businesses for US$1,000 per month.
The Wavelength Routing BU consists of Monterey Networks, whose first customer, "a large Canadian telephony company," has made a US$10.5 million optical purchase. Qeyton is slated to join Pirelli in the Photonics BU, delivering dense wave division multiplexing (DWDM) all the way through optical MANs at a lower cost than other solutions designed for long-haul transport.
Nortel, already king of the long-haul optical-transport hill, has spent nearly US$8 billion on three firms that will extend its edge in that market.
"Qtera addresses express routes, pure optical cross-country transport," explains Smith. "Xros provides managed service capability over long-haul optical," a significant value-add vs. the "dumb fibre" in use today. CoreTek, which expects to yield products in Q4, will provide "colour," or the ability to change light wavelengths in real time to give networks the flexibility to monitor and reroute optical traffic.
Big on engineering ingenuity but trailing in sales of optical-networking gear, Lucent believes its strength lies in the diversity of its offerings, and it's willing to spend big bucks to expand that catalog.
Lucent has made at least three big optical buys: Chromatis, Herrman Technology and Ignitus. Chromatis, for instance, makes products that can combine packet, cell and time-division multiplexing switching under a unified management standard.
Note that metro optical networks are the big play for Cisco, Nortel, Lucent--and their partners.
