Drawn into the optical sphere: Siemens start-up launches at NFOEC

The National Fiber Optic Engineers Conference in Denver last week featured overflowing session rooms and a show floor crowded with established and start-up optical networking companies. Amid it all, Siemens, among the biggest of vendors, spun off its optical networking division and officially launched Opti-sphere Networks, a subsidiary solely focused on optical networking.

"We're turning to the next generation Internet, where optical networks play a dominant role. With optical networking, we recognize that the U.S. market is big, and [to be successful] we have to be in the U.S," said Jost Spielvogel, acting president and CEO of Optisphere and a member of the executive management board for Siemens Information and Communication Networks Group.

Earlier this year, Ericsson had the same idea. It moved its optical headquarters to Boston, opening the office in July, said Bob Welch of Ericsson's optical networks group. "It's a U.S. sensitivity. IP innovation occurs here [in the U.S.] so it makes sense to move the product planning closer to the market," he said.

Though founded in April, Optisphere didn't officially launch until last week. The company will be based in Reston, Va., and already employs 400 people, many of whom are located in the Siemens facility in Boca Raton, Fla. "It's a blend between a frontier start-up and an established company. We will be transferring knowledge," Spielvogel said.

Siemens' involvement in Optisphere will be limited, he said. Siemens will have access to the optical technologies developed, and Optisphere - at least initially - will share Siemens' sales channels and service organization. "It will be run at arms length [and] managed through the board," Spielvogel said.

Optisphere is in a unique position. It already has a portfolio of long-haul and metro transport products, including the TransX-press Infinity dense wave division multiplexing system and optical routing and multiser-vice aggregation devices.

That's one of the advantages of not being a typical start-up, Spielvogel added. "You can draw on the resources of a big company. [Most] start-ups are called on to take a narrow view, and they fail or succeed. We can offer more than one product."

In addition, Siemens has a presence in 160 countries, giving Optisphere a foot in the global door.

The company is charged with developing next generation products, too. The first out of the gate likely will be the second release of the Infinity platform. In the fiscal year ending September 2000, Infinity's sales reached $200 million, Spielvogel said. Next year Optisphere will introduce the second release - a 3.2 Tb/s system that supports 10 and 40 Gb/s transport. Later in the year, Optisphere will introduce the FOX, a 40 Gb/s multiservice aggregator or thin multiplexer that falls in the same product category as the existing TEX, a 10 Gb/s thin multiplexer.

Optisphere also will develop "pure optical" devices that will not be optical versions of existing Sonet/SDH products, Spielvogel said.

Despite its Siemens heritage, Optisphere is in a building phase, said John Davidson, vice president and chief financial officer. "We're recruiting, and the stock option plan indicates that Siemens is willing to give us the tools to recruit in a market at this competitive level."

Still, the non-start-up start-up faces a few hurdles. Optisphere has entered a highly competitive market at a time when venture capitalists are throwing money at optical companies. A shakeout will occur, and though the large players are virtually guaranteed a winning position, Siemens must work hard to earn that spot. At a time when the company could bank on its established name, it has opted to re-brand and start anew.

The re-branding strategy might be good for Siemens' situation, though, said Lawrence Gasman, president of Communication Industry Researchers. "Siemens in the past has done a bad job of telling the world its story. It has had significant success in optical networks overseas, but that is not the impression you get from a cursory look," he said."This will get them a new start in the U.S. market."

Another challenge for the Siemens parent will be to maintain a hands-off approach. Siemens no longer will control product development and must be careful not to step too far in the Optisphere realm, which would defeat the purpose of the separate company.

"Nimbleness in this industry is critical right now, and yet at the same time, the need to escalate the technology is very important," said Karen Liu, senior analyst with RHK. Optisphere's goal is to manage that balance, she said.

And the former Siemens staff that has made the shift to Optisphere must think and act like start-up employees. Hiring management and technical talent - even with a recently approved stock option plan - has proven difficult for all companies, though the Siemens backing might help.

But the greatest challenge is convincing service providers that Optisphere is a viable player in a crowded market. The Siemens parent in this case is a double-edged sword, Gasman said. "The advantage is the money they can throw behind their marketing - it's more money than even the wealthiest startup can dream of," he said. "The disadvantage is that there is always a little worry by some of the [incumbent] service providers in dealing with a company based overseas."