Fiber-optics race is for high stakes

Nice pot of gold could await Ciena, or its competitors

Alas, there's a head wind

Obstacles abound, most traceable to droopy economy

March 11, 2001|By Stacey Hirsh | Stacey Hirsh,SUN STAFF

Among racks of equipment in a small room at Ciena Corp. in Linthicum, stand tall, sleek machines that feed the Internet: They can take hair-thin beams of white light, split them into dozens of light streams jammed with information and hurl that information across the country at laser-fast speeds.

It's the "next generation" of fiber-optics which dozens of companies are racing to produce. The stakes, for businesses and consumers, are huge.

The companies that get to market first stand to gain the biggest chunk of what is expected to be a $57 billion industry in five years. For consumers, the new technology could mean services such as high-quality video telephone calls and downloading movies from the Internet within seconds.

But the race comes while the industry is being squeezed by several forces: an economic slowdown that is preventing customers from investing in new networks, venture capitalists less willing to pour money into technology companies and dwindling dot-coms that were key clients for fiber-optic equipment.

"This is very much like the off season in baseball," said Jim Orlando, a principal at Battery Ventures, a venture capital firm in California. In the end, he said, some strong, existing companies will remain, new ones will be formed, and some businesses will fold.

Venture capitalists are being very picky about the deals they make these days, and companies now needing another round of funding are being looked at with a magnifying glass. Only the best will get more money, Orlando said.

"We have seen a slowdown in the pace of new investments that have been made in new technology companies," he said.

Layoffs and poor economic forecasts announced by several companies in recent months paint a murky picture for at least the near future.

Prospero Roda, an analyst with Global Capital Securities in Baltimore, said that in today's environment the newer, more limber companies are at an advantage to survive.

Younger companies can channel all of their energy and resources into the new technology. Ciena, for instance, has raised financial estimates for the year, and is hiring about 35 workers a week. The company exceeded analysts' expectations when it recently announced earnings of $54 million, or 18 cents a share, for its fiscal quarter, which ended Jan. 31.

More established companies, such as Nortel Networks Corp., have to worry about both building up the old technology and developing the new - sometimes competing with themselves.

Nortel said last month that it would lay off 10,000 workers and it lowered its financial estimates for the first quarter and the year.

Other companies - some old and some new - are also experiencing growing pains.

Bookham Technology PLC, a British maker of fiber-optic components that has its North American headquarters in Howard County, announced last week that it would scale back its work force by 15 percent - or 150 people - to focus more on a piece next-generation equipment.

The cutbacks at Bookham will not affect the U.S. plant, but other telecom companies in the States are also scaling back as outside factors, such as the economy, put pressure on the industry.

JDS Uniphase Corp., the world's top supplier of fiber-optic components, announced last month that it would lay off 3,000 workers, or 10 percent of its staff. The company last week lowered financial estimates for the third and fourth quarters - its second cut in three weeks.

Equipment-maker Lucent Technologies Inc. said in January that it would cut up to 16,000 jobs, about 13 percent of its work force. Corning Inc., which makes fiber and cable for telecommunications networks, said this month that it will fire 825 employees, or 2.1 percent of its work force.

"The ones that are strong enough to survive this will be stronger from it," Roda said.

But they will have to survive their customers investing less in new networks because of economic slowdown. And some of their customers, the dot-coms, won't be investing at all because they've fallen to the wayside, said Grant Seiffert, vice president of external affairs and global policy at the Telecommunications Industry Association.

"Everything's sort of hitting us at once," he said.

While fiber-optic networks will continue to be built and updated, the economy will dictate the pace.

"If things were better we'd be doing it even quicker, but we can't stop doing it just because times are tough," said Stuart Elby, executive director of Internet protocol network development for Verizon Communications Inc., the biggest local phone company in the country.

Verizon - which is spending $12.7 billion to build up its old system and invest in a new one - said last month that it plans to cut an unspecified number of jobs. And it has been widely reported that WorldCom Inc. is expected to lay off as many as 11,550 employees, or 15 percent of its work force.

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