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Optical Networks wins $125 million in funding, contracts

The San Jose, Calif.-based company aims to upgrade the aging metropolitan layouts that zip data around various cities.

Start-up Optical Networks, a maker of equipment for metropolitan areas, announced a $75 million infusion of cash and $50 million in customer contracts, two signs that the firm may be the latest beneficiary of investor largesse.

The San Jose, Calif.-based company specializes in technology that happens to be the hottest niche in the networking market, and it shows. Optical-based networking systems are thought to be a panacea for network operators that can't keep up with the capacity demands of their customers, because the technology can turn a single strand of fiber into a "fat" pipe capable of handling huge amounts of data at high speeds and low cost.

Optical Networks is specifically addressing the aging metropolitan layouts that zip data around various cities. Boosting speed in this area of network systems is thought to be vital for delivery of data and Internet traffic, because providing bandwidth closer to residential areas and office complexes can only feed the desire for more capacity-gobbling applications, such as videoconferencing.

Optical joins a myriad of start-ups, small players like Sycamore Networks and industry giants like Nortel Networks in a race to build equipment for various parts of an optical network. In North America alone, the market for optical networking and associated technology based on dense wave division multiplexing (DWDM) is expected to grow from $3.1 billion in 1999 to $15.2 billion in 2003, according to market researcher Ryan Hankin Kent.

The company has now raised a total of $125 million. In its latest round of $75 million, technically its third, Bowman Capital Management was the lead investor. Others involved include Brocade Communications Systems, Juniper Networks, E-Tek Dynamics and Williams Communications, according to executives.

Optical also announced $50 million worth of contracts with an impressive array of global telecommunications operators, including European player Colt Telecom Group, Latin American entrant MetroRed, Japanese provider KVH and Georgia-based operator Marietta FiberNet.

The 225-employee company plans to open a 58,000-square foot manufacturing facility in San Jose, Calif., in April of this year.

"This is not a small stakes game," said Rohit Sharma, an Optical Networks founder and vice president of its optical hardware division. The executive declined to comment on a possible public offering, but said the company would be looking for further funding down the road.

Analysts said high-speed optical equipment can alleviate the constraints of less-flexible gear based on older synchronous optical networking (SONet) technology, opening up opportunities for numerous start-ups like Optical Networks.

"The big opportunity is more and more bandwidth," said Michael Howard, principal analyst and founder of industry researcher Infonetics Research.

"Once that happens, we're going to see all sorts of pent-up demand for moving data traffic," Howard said.