Hugh Martin

Picking a solid target market means the difference between success and failure. ONI Systems Chairman, President and CEO Hugh Martin is hoping his focus on the metropolitan optical space is a solid one. With equipment already deployed in carrier networks, ONI's chances of success are better than other start-ups that lack ready product. Of course, picking a good target market doesn't ensure success — that has to be earned. ONI faces competition from established larger vendors. The challenge is to outwit the others, or at least outrun them.

Ironically, though, while competitors such as Nortel Networks and Cisco Systems have been forced to lay off workers, ONI has been hiring. And while others were lowering their revenue expectations, ONI has raised them for 2001. “When we were founded there was tremendous buildout in the long-haul,” says Martin. “The next big buildout is in the metro.”

Although wave division multiplexing was working well in the long haul, ONI was trying to convince service providers it would work in the metro, too. “That was the dangerous part,” Martin says. “But we stuck to our guns and it has taken off well.”

Since those initial bets, ONI has landed deals with service providers, including COLT Telecom, Progress Telecom, Qwest Communications and Sphera Optical Networks. “There is still a lot of equipment to be bought,” Martin says, “And there are a lot of other companies getting into the space — like utility companies.”

One such provider with strong utility ties is NEON Communications, which shares ONI's faith in the metro. NEON is deploying dark fiber in states such as Massachusetts and New York and recently completed a deal with Verizon.

“Local is where [service providers] need to be,” says Steve Courter, chairman and CEO of NEON Communications. “Metro and regional networks were something people overlooked before, but they are starting to [look at them] now.”

Pioneer Consulting expects the total worldwide metro optical networking market to go from $2.98 billion in 2001 to $13.17 billion in 2005. According to the Dell'Oro Group, ONI had a 25% share of the market in Q1 2001.

“ONI is in a pretty good place right now,” says Doug McEuen, senior analyst with Pioneer. “They are very strong in the metro area, which is where you need to be strong right now.”

But while ONI has had good traction in the market, Wall Street has been hurtful. Not long after the company had its IPO in July 2000, shares hit $142, but by early April had fallen to a mere $15.75. At the time of publication, the stock had buoyed back up to $34.08.

“It's easy to grow companies when times are great. But it's hard to do well when times are tough,” says Martin. “We welcome that as long as we are smart about it.”