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Cisco, Goldman Sachs fund optical components maker

The companies will help fund optical subsystem start-up Phaethon Communications, offering further evidence that money has not dried up in all high-tech markets.

Optical subsystem start-up Phaethon Communications will announce Wednesday the completion of its second round of funding with the help of Cisco Systems and Goldman Sachs, offering further evidence that money has not dried up in all high-tech markets.

The Fremont, Calif.-based maker of optical components said Cisco and Goldman joined first round investors Mohr Davidow Ventures and the Photonics Fund in a $22.1 million round.

Phaeton makes equipment that addresses the problem of weak optical signals over long-distance fiber-optic networks. Optical networks transmit data with pulses of light that travel through fiber-optic wire made of glass. Lightwave transmissions tend to weaken the farther they travel and the faster they are transmitted.

Jim Smith, an associate at Mohr Davidow, said that most optical networks currently send data at about 2.5gbps (gigabits per second). Smith said phone companies and other data carriers are building networks that can send information at 10gbps and plan to increase the speed to 40gbps in the second half of 2002 at the earliest.

Dispersion increases with the transmission speed, which hinders data signals. Phaethon, (pronounced fay-a-thon) plans to market sometime this year component subsystems that help keep signals intact.

"If you don't solve the dispersion problem, networks will not be able to run at higher speeds," Smith said.

Phone carriers plan to reduce spending on equipment this year, a trend that has hit a wide swath of the equipment industry. JDS Uniphase reduced estimates again at the close of the market Tuesday.

Smith says that spending will still be strong even though it will be less than previously planned. "Pulling back is more like a slowdown in the (spending) increase than a decrease," he said.

Telecommunications companies will reduce spending, but Smith said that the companies still will want to build their networks and not get left behind in the race to increase network capacity for customers.