Holy Crap. It’s a good phrase to describe what’s happened to optical company stocks. What was once a first round funding is now the market cap of some of the biggest names in the business. Why are they trading so low?
At the OFC conference last year I accidentally had lunch with a Hedge Fund analyst. Yep, I missed my chance to poison her drink then, but now I understand the words she said to me. Wall Street couldn’t figure out how optical companies were going to make money. They were right about this and they bailed. I can’t figure out how they are going to make money and I’m in the business. If I were running one of them, I’d be looking for work or a new business model.
It’s the business model that is the problem. The idea back when we loved Finisar, E20, Stratos, OCP, etc was that with enough cash they could outlast their competitors and play in God’s greatest market since Eden: high speed Internet connectivity. There was even enough hubris to think there was enough business to go around. I don’t have an MBA (and don’t want one) but that didn’t make sense then and it played out accordingly. Stratos bailed to military and AV, OCP got swallowed up by a passives vendor, E20 ran out of O2, and JDS left the US and now the SFF business (help me with that Picolight acquisition). The only one who ever made any money was Hitachi/Opnext. And outside of restating their earnings, they survived and thrived by living in the 10G space as Avago and Finisar bled each other in the SX market and the remaining players consolidated manufacturing to make 1310 and 1550 parts in Taiwan and China…which then setup shops to slice and dice their trainer. And what happened to Opnext? They sold 1/3…ONE THIRD…plus $30 million in cash to hire Stratalight people to do product marketing and hand over 40G technology. What the…you mean you get to make 10-15% net for a few years and then sell 1/3 of your company just to survive?
The transceiver business is busted. As one expert transceiver salesperson put it: something has to change more than just me losing my job. The network equipment market isn’t too much better. The whole game in Internet connectivity was based on selling Ports. How many ports was the mantra of Ethernet strategic analysis experts. So everyone just gave stuff away to get as many ports out there as they could. Too bad they forgot that with no follow on business past giving away the razor, they couldn’t make money on razor blades that were all based on 802.3 and MSA standards. The only one laughing is Cisco, who buys parts for $20 and sells them for several hundred $s. and worse as they get to longer distance or higher speed parts. As long as the MSA exists, nobody is going to make money making transceivers.
This is direct contrast to the insanity of the US government handing out coupons for its citizens to get digital TV adapter boxes. Who is running this show, Milton Berle? I’m an American History Major and I am sure there is no damn amendment in the Constitution, i.e. a Federal right and responsibility, to television. Thomas Jefferson deployed troops and killed people to protect States Rights, so where was he when the Federal Government came along and said: we are responsible for what our citizens see and therefore liable to help them continue to watch television. It’s a coupon, but it’s the point of it. The all powerful analog television lobby must be behind this. But how could they be more powerful than the Internet Generation? Where are the tech companies saying: forget the coupon, give everybody in the US one year of free broadband. Or lets try to keep up with countries our military protects like S. Korea or Japan. They could have done something really cool like create backup servers for all email servers in the country. Not the real servers, but if you run an email server, you could get hosted space and backup links to a govt. owned and secured data center. Imagine how reliable eMail could be? I’m not saying they police it, I’m saying the help guarantee the service…US Mail online.
The US government does some silly things. Worst in the world, except for all others and all that; getting out of the country recently helped me look back on home. I made a trip to Canada, Montreal, recently. It’s still pretty easy to travel there from the US. Easier now than a few years ago and I hope to back to the land where everyone wears black clothes with red highlights. I stayed in the best hotel, right by the airport. Outside of the great French accent the receptionist had, she wowed me with a frosted glass of Champagne when I checked in. Flowers, chocolates, nice bed…and this, would you believe, was a Hilton Garden Inn. I did run into a problem at the airport that I’ve suffered thru elsewhere and am really tired of dealing with. That is, which side is the Men’s room on. When I lived in New Orleans and stumbled to the bathroom, getting out of this mistake was no big deal. But now, I need this decided. I want government action. Right or left, make a decision. Men need to know. Can’t it be like a transceiver? Isn’t there some IEEE equivalent for these kinds of things? Bathrooms are free and there is no standard, how did they do it?
I guess that in the end of this downturn we finally see the companies that need to act, act. The OFC show returns next month for anyone who wants to go to what will likely be a wake. Their tagline is “where innovation comes alive” which is hilarious considering it really should be “where desperation keeps a few of us alive.” But I’d bet that the tag line was left over from some years ago and OFC cut staff including marketing and support. At the rate we’re all going we’re going to have to decide to go left or right, but not continue stumbling straight ahead.
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