The Optics Industry: Interview with Ann Monroe
Jamie Earle
Issue date: 10/15/01 Section: Technology
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Q: Tell us about your background.
A: I received a BSE in Mechanical Engineering from Loyola Marymount University. Prior to attending the Stanford GSB, I worked for Mattel in Girls New Product Development with most of my work focused on Barbie. Last Spring, I did a 390 with Intel’s Photonics Technology Operation (PTO). During the summer I worked for an optical component start-up in Ithaca, NY, funded by Draper Fisher Jurvetson and Stanford University.
Q: Tell us a little about the optical networking industry.
A: Optical components are the hardware building blocks that make communications possible. Systems vendors such as Cisco or Nortel purchase optical components that they assemble into systems (routers, switches, etc.) that direct and send your phone calls or data to where they need to go. Carriers such as AT&T or Verizon place these pieces of equipment at key locations around the country and connect them via optical fiber to form a local or nationwide network.
Q: Can you give us a sense for the competitive landscape?
A: Originally, these firms were vertically integrated with AT&T (now split into Agere, Lucent, and AT&T) being the prime example. Today there are over 200 optical component start-ups, five Tier I companies (JDS Uniphase, Nortel, Agere, Corning and Alcatel Optronics) and eight Tier II companies (ADC Communications, Finisar, Luminent, New Focus, Stratos Lightwave, Oplink, Avanex, and Alliance Fiber Optics). Nortel and Alcatel, both systems vendors, are also the second and fifth largest optical component makers in the world. Both firms also purchase optical components from other vendors who may have a key technology advantage, a cost advantage, or just so they have a back-up supply. For example, recently Nortel purchased tunable lasers from Bandwidth9 even though it has the technology in-house from its acquisition of Coretek.
Q: What should MBAs looking to get into optical networking be aware of?
A: You may have read the almost daily announcements of layoffs by all the major optical networking companies. In general, MBAs have been some of the first people let go because it is much more difficult to recruit a PhD in Physics then it is to recruit an MBA for product marketing. However, if you ask any company, they will tell you that they will always try to make room for a bright individual that can move their company forward. During Cisco’s most recent earnings conference call, John Chambers stated that they have a hiring freeze in effect till January 2002 at which point they will reevaluate the situation. He went on to state that even during this hiring freeze they will be actively recruiting talented executives from their cash starved competitors in order to shore up the management talent in some critical areas. Prior to September 11, the consensus was that the optical networking space would resume growth in the summer of 2002. At this time, it is unclear if that will still be the case.
Q: Sounds tough. What will happen to the current industry players?
A: Most of the optical component start-ups are going to fail. In 1999 and 2000, for every conceivable component category, VCs funded at least five companies. During the last several months, many of these “me too” companies have run out of cash and haven’t been unable to obtain additional funding. In general, VC funding in the optical networking area has significantly slowed but they are still making investments in companies that have a true technological breakthrough.
Q: What does the future hold?
A: Looking towards the future, manufacturers have focused their development efforts on building faster and higher capacity systems at a low cost. Currently, most networks that connect major cities, such as San Francisco and New York, are running 80 wavelengths at 10 Gbps per fiber. Component vendors are actively developing systems that support 320 wavelengths at 40 Gbps. Other vendors are focusing on 10 Gbps but are developing automated manufacturing systems that will reduce the cost and size of these components.
Q: How can students learn more about this industry and its players?
A: For those of you who want to learn more about the science involved, I recommend reading the Beginners’ Guides at www.lightreading.com and downloading reports off of Multex from CIBC World Markets analysts Rick Schafer, James Jungjohann, Alan Bezoza and Kevin Gallagher.
A: I received a BSE in Mechanical Engineering from Loyola Marymount University. Prior to attending the Stanford GSB, I worked for Mattel in Girls New Product Development with most of my work focused on Barbie. Last Spring, I did a 390 with Intel’s Photonics Technology Operation (PTO). During the summer I worked for an optical component start-up in Ithaca, NY, funded by Draper Fisher Jurvetson and Stanford University.
Q: Tell us a little about the optical networking industry.
A: Optical components are the hardware building blocks that make communications possible. Systems vendors such as Cisco or Nortel purchase optical components that they assemble into systems (routers, switches, etc.) that direct and send your phone calls or data to where they need to go. Carriers such as AT&T or Verizon place these pieces of equipment at key locations around the country and connect them via optical fiber to form a local or nationwide network.
Q: Can you give us a sense for the competitive landscape?
A: Originally, these firms were vertically integrated with AT&T (now split into Agere, Lucent, and AT&T) being the prime example. Today there are over 200 optical component start-ups, five Tier I companies (JDS Uniphase, Nortel, Agere, Corning and Alcatel Optronics) and eight Tier II companies (ADC Communications, Finisar, Luminent, New Focus, Stratos Lightwave, Oplink, Avanex, and Alliance Fiber Optics). Nortel and Alcatel, both systems vendors, are also the second and fifth largest optical component makers in the world. Both firms also purchase optical components from other vendors who may have a key technology advantage, a cost advantage, or just so they have a back-up supply. For example, recently Nortel purchased tunable lasers from Bandwidth9 even though it has the technology in-house from its acquisition of Coretek.
Q: What should MBAs looking to get into optical networking be aware of?
A: You may have read the almost daily announcements of layoffs by all the major optical networking companies. In general, MBAs have been some of the first people let go because it is much more difficult to recruit a PhD in Physics then it is to recruit an MBA for product marketing. However, if you ask any company, they will tell you that they will always try to make room for a bright individual that can move their company forward. During Cisco’s most recent earnings conference call, John Chambers stated that they have a hiring freeze in effect till January 2002 at which point they will reevaluate the situation. He went on to state that even during this hiring freeze they will be actively recruiting talented executives from their cash starved competitors in order to shore up the management talent in some critical areas. Prior to September 11, the consensus was that the optical networking space would resume growth in the summer of 2002. At this time, it is unclear if that will still be the case.
Q: Sounds tough. What will happen to the current industry players?
A: Most of the optical component start-ups are going to fail. In 1999 and 2000, for every conceivable component category, VCs funded at least five companies. During the last several months, many of these “me too” companies have run out of cash and haven’t been unable to obtain additional funding. In general, VC funding in the optical networking area has significantly slowed but they are still making investments in companies that have a true technological breakthrough.
Q: What does the future hold?
A: Looking towards the future, manufacturers have focused their development efforts on building faster and higher capacity systems at a low cost. Currently, most networks that connect major cities, such as San Francisco and New York, are running 80 wavelengths at 10 Gbps per fiber. Component vendors are actively developing systems that support 320 wavelengths at 40 Gbps. Other vendors are focusing on 10 Gbps but are developing automated manufacturing systems that will reduce the cost and size of these components.
Q: How can students learn more about this industry and its players?
A: For those of you who want to learn more about the science involved, I recommend reading the Beginners’ Guides at www.lightreading.com and downloading reports off of Multex from CIBC World Markets analysts Rick Schafer, James Jungjohann, Alan Bezoza and Kevin Gallagher.