This page contains a Flash digital edition of a book.
@fibresystemsmag |

Sharing of the wealth

As technology cycles accelerate, how will optical components and module vendors continue to fund advanced research and development? Pauline Rigby investigates


ew industries are subject to the pace of innovation experienced in the telecom sector. But, as innovation

escalates, so too does the cost of developing the novel technologies that help to keep companies ahead of their rivals. Optical components and module vendors in particular are feeling the pressure. ‘Systems companies would like to

see the bandwidth double every three years. You can easily make an analysis that says it is very hard to support that development on the profits that the optical components companies are making. Tat’s a fundamental problem,’ commented Julie Eng, executive vice president of datacom engineering at Finisar. Te calculation is straightforward.

We know that the optical transceiver market was worth about $5 billion in 2014, thanks to data from market research firm LightCounting. Public companies like Finisar and Oclaro typically invest around 12 per cent of their revenues in research and development (R&D), information that they have disclosed to investors. Continuous product development soaks up much of the available investment, leaving something in the region of one per cent of revenues to put towards research into advanced, next-generation technology. Te upshot is that the entire

components industry only has about $50 million to spend on advanced optics R&D if companies have to

fund it through their own profits, according to Eng. To put that into perspective, consider this: in its heyday in 2000, Nortel Networks spent $5.95 billion on R&D, more than the entire revenues of the optical transceiver market today. Of course, the supply chain has

been transformed since the dotcom boom. Back then optical components vendors were captive divisions of major systems houses, like Alcatel, Lucent Technologies, Nortel and Marconi. Today, optical components makers are specialist standalone suppliers, and investment into

The components industry only has about $50 million to spend on advanced optics R&D

advanced technology development represents a significant burden. Te industry needs to be aware

that there might not be enough money in the pipeline to fund the technology development needed for the future, says Eng. ‘My main reason [for raising this topic in the industry] was that I was living it as a person who’s managing how Finisar

Finisar’s manufacturing in Malaysia

invests our dollars,’ she said. ‘We’re the biggest in this industry – we’re about 28 per cent market share – and so if I see that it starts to get hard for Finisar to invest [in advanced technologies], then that’s a big concern. ‘I felt there were people who had

end products that depended so critically on optics, but had no idea how resource starved the optics industry was to deliver them their next-generation technology. Terefore, they might not get the products that they want in the time frame that they want them.’ Adam Carter, chief commercial

officer at Oclaro agrees. ‘I’ve been in this industry a long time, and I would say that for a long time it hasn’t been very healthy. 35 points of gross margin is not something that can you say is healthy when other people in the supply chain are running 60, 65 points gross margin. Tat means you are limited in what you can fund.’

Raising awareness Tis is not the first time that the subject has come up. Finisar’s Julie Eng originally drew attention to it some eight years ago, at a meeting of the Optical Industry Development Association (OIDA), and thinks that, if anything, the problem has intensified since then. Over the past five years, global

bandwidth consumption has soared. Optical module development cycles have been cut in half, but the underlying physics has become much harder. Tis requires step changes in the way companies do their development, both for the individual components and how the components are put together inside a module. At the same time, demanding new

customers have emerged in the shape of the Web 2.0 companies like Facebook and Google, who are powerful enough to set the industry agenda. Facebook, for instance, has challenged the industry to develop

Issue 11 • Spring 2016 FIBRE SYSTEMS 15



Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44