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Tunable lasers music to optic industry's ears

Tunable fiber-optic lasers may strike the right note with a communications industry intent on cutting costs.

    A new technology in the fiber-optics market is striking the right note with investors and raising cash at a time when industry confidence is low and venture capital is hard to find.

    A number of start-ups--such as Iolon, Agility Communications, Sparkolor and recently acquired Altitune--have generated a buzz in the telecommunications world while recent earnings warnings and slow sales have given businesses little to be happy about.

    These companies manufacture lasers that are capable of transmitting data on a wide range of wavelengths, rather than on a single frequency. Called "tunable" lasers because of this characteristic, they can potentially reduce costs for optical-equipment makers and their carrier customers.

    "People are looking for ways to cut (capital expenditure) and operating costs, and tunable lasers can probably do both," said Rick Schafer, an analyst at CIBC World Markets.

    These tunable lasers will be one area of interest at this week's Optical Fiber Communication (OFC) 2001 conference in Anaheim, Calif., which will feature dozens of advanced fiber-optic technologies and new start-ups.

    For example, Quantum Bridge Communications on Monday introduced the QB8000, an optical edge switch that carries traffic at high speeds. Separately, metropolitan area network equipment maker ONI Systems will demonstrate its Online11000, gear designed for regional optic rings.

    Gemfire, a Cisco Systems-backed optical parts maker, and LaserComm, a Plano, Texas-based component maker, also plan to unveil or demonstrate products at the show.

    Similarly, Blue Sky Research, another fiber-optic component maker, plans to announce several new tunable laser and optics semiconductor products at OFC. Hundreds of other companies also will exhibit their products.

    How it works
    Fiber-optic networks carry Internet, voice and other content as different-colored pulses of light. Each hairlike fiber strand requires lasers to propel the colored light. But fixed-wavelength lasers, which dominate the market today, require equipment makers to purchase many laser components to transmit data over a broad range of colors.

    Installing fixed-wavelength lasers, experts say, is not as efficient as simply purchasing thousands of the more flexible tunable lasers that can produce any number of wavelengths. Proponents of the technology say equipment makers can cut costs by purchasing tunable lasers in larger volumes.

    "The suppliers can see (cost savings) because we're producing one type of laser instead of 160," said Marti Nyman, Director of ADC Broadband's Advanced Photonics Integration Center. "It's ultimately a food-chain effect. Tunable lasers provide a cost savings to the systems vendors who in turn are able to sell their equipment at a lower cost to the carriers who can turn up more broadband services for their customers."

    Some Wall Street analysts also believe that the slowdown in telecom spending actually helps the tunable laser market.

    "If carriers aren't spending as much, then tunable lasers are actually a savings," said Arun Veerappan, an analyst at Robertson Stephens.

    The all-in-one feature of tunable lasers also gives carriers less logistical headaches. "It's a lot easier to inventory and track one item than 160 discrete items," said Schafer.

    Yet there are some drawbacks. Generally, the more widely tunable the laser, the less its ability to transmit a powerful pulse, which decreases the distance a signal can travel.

    This trade-off makes the lasers more suited to metropolitan networks as opposed to long-haul networks that run between cities. Veerappan also says that the companies are working on adding an amplifier to a tunable laser to boost its strength--but that technology is a long way off.

    The more immediate problem for tunables is money. The now-smeared halo around technology has persuaded investors to take their money out of tech, and this trend could pinch future development.

    "There are many private companies that are funded for the next six to nine months to go into the tunable market, and some of these companies won't be around a year from now," said Veerappan.

    The players, for now
    In the meantime, there are a number of start-ups jockeying for position in the new market. Iolon, a privately held San Jose, Calif.-based component maker, received $53 million in funding last month led by Bowman Capital.

    Kleiner Perkins Caufield & Byers also contributed, and Kleiner partner Vinod Khosla, a noted optical-industry investor, will oversee the company's investment in Iolon. Several well-heeled investment banks and a unit of Corning also took stakes in the company.

    Agility closed a $70 million round of funding last October. Sparkolor, a Santa Clara, Calif.-based start-up, received about $13 million late last year and plans to make a tunable laser as its first product.

    The interest in tunable lasers doesn't stop with VCs. ADC, a communications-equipment maker, acquired Altitune for $872 million last May. ADC is expanding its manufacturing facilities in Sweden to accommodate greater tunable-laser production, according to a spokesman.

    ADC also agreed last week to work with Agility to develop standards for tunable-laser modules.