Dodging the commodity bullet

Balancing supply and demand is a tricky, perennial task in any industry. For the optical components market, supply is currently extremely tight. But most companies are cognizant of the fact that change in demand and the entry of more manufacturers can alter that supply crunch rapidly.

Optical component development and manufacturing can be easily compared to the dethroned days of the semiconductor industry. Where semiconductor chipsets were once highly valued, they have become fairly commonplace and far less expensive. That commoditization also has happened with some components that perform so-called discrete functions.

As companies gravitate toward the optical component space because of its extensive demand, the market may reach a high level of saturation. To prevent these companies from being on the losing end of the supply and demand cycle, it is crucial that they develop a strategy for long-term survival.

Nortel is taking a multifaceted approach to ensure its components arm stays ahead of the curve, said Doug Alteen, vice president of marketing for high performance optical component solutions for Nortel.

“The integration of optronics and electronics is an important value proposition,” he said. “It is particularly important when related to the development of modules. Having an integrated, modular solution is key.”

Nortel's plan is to combine a variety of components such as lasers, authenticators and blockers, Alteen said. Many companies can't put together all the discrete components, he said, which forces others to do the integration. “To do discrete functions is one thing,” Alteen said. “To combine them is another.”

Nortel also focuses its component efforts primarily on devices for high-demand systems such as ultra long-haul equipment, Alteen said.

“You can really look at what's going on at the system level to see where the most [development] will be going on at the component level,” said John Lively, director of optical components for RHK. The current state-of-the-art developments are 10 Gb/s, but as systems climb to 40 Gb/s, the pulse width decreases, making the signal more sensitive to dispersion, Lively said.

While Nortel's strategy is to move away from being a supplier of discrete components, other companies may adopt different strategies to sell discrete components, Lively said.

One company, Telephotonics, favors high-level integration. In contrast to other component manufacturers, Telephotonics uses a variety of materials to create an integrated device.

“Some [vendors] do a complete subsystem on a chip, which is not really practical because if just one material is used, concessions have to be made,” said Dave Freihofer, director of marketing for Telephotonics.

Telephotonics uses a combination of thermo-optics, magneto-optics and electro-optics to manipulate light. Because the Telephotonics device can be easily imbedded with a variety of functions, Freihofer believes it will be insulated from the danger of commoditization.

“If we have customer-specific devices, [they] won't be a commodity,” he said. “We will succeed by providing the necessary functions at a price that will cause the market to explode.”

Briefly

Incredibly shrinking EDFAs

SDL has developed small form factor erbium-doped fiber amplifiers, or EDFAs, to be used in DWDM networks. The new product is intended to amplify signals cost-effectively at specific points in the network.

Ramp it up

Alcatel Optronics is bolstering its optical component manufacturing. The company increased the production capacity of its facility in France.