Fiber aftershock

The carnage among long-haul carriers portends a rough ride ahead for suppliers of optical fiber — particularly Lucent Technologies, which is trying to sell its fiber division to meet cash needs.

Corning has throttled fiber manufacturing by announcing a 12- to 18-month delay in building an Oklahoma City fiber manufacturing plant, pushing the start of production to late 2004 or early 2005. The company said the delay would impact fiber manufacturing capacity beginning in 2002 and was needed to pace growth in manufacturing capacity with market conditions.

Corning's fiber business is deteriorating because of an industrywide deceleration in sales volume, not due to “losing accounts,” said Joseph Wolf, analyst at UBS Warburg. At the end of 2000, the industry was looking for 30% growth, but that was “ratcheted down” to 15% growth in 2001 because of more network capacity coming online, he said. “We would not be surprised to see similar announcements from others,” Wolf said.

While sales of single-mode fiber (used in long-haul and undersea links) currently remain strong, supply will exceed demand by early 2002, Wolf said. Sales volume of premium fiber — high data-rate and high channel-count pipes — is down due to slow take rates overseas, he said.

The global picture is healthier, said Altaf Ladak, Alcatel's director of strategy and communications. Strong demand for long-haul fiber exists in Eastern Europe and Southeast Asia, he said. Last month Alcatel introduced TeraLight Metro, a premium fiber targeting the burgeoning metro market.

But metro carriers' needs may be filled by existing fiber, said Doug McEuen, senior market analyst at Pioneer Consulting.

“In areas where you have fiber exhaust, metro [dense wave division multiplexing] will come into play more,” he said. “And companies will start going with the technology that suits the area, such as metro Ethernet. Ethernet is a very inexpensive technology and simple to use.”

As operators move to 10 Gb/s and 40 Gb/s systems, sales of nonzero dispersion-shifted fiber will accelerate, Ladak said. “Single-mode [fiber] at some stage becomes cost-prohibitive and, for certain distances, doesn't work anymore,” he said.

But a recovery could come too late for Lucent. If the fiber business hits a prolonged slump, the company may be lucky to get $4 billion (double sales for 2000) for the optical fiber division.

“I think the valuations for the entire sector are definitely going to play a role in the price of Lucent's business,” Wolf said. “It looks like 2000 was a peak year for sales — [an acquirer] wouldn't pay a multiple of peak.”