oe magazine. The Monthly Publication of SPIE—The International Society for Optical Engineering
from the magazine
preview next month
e-mail newsletter
advertiser index
media kit
Table of Contents

april 2001

special focus: remote sensing
remote sensing grows up
view finder

cutting-edge accuracy
integration in 3-D

hitting the spot

president's letter
editor's letter
eye on technology
industry forum
business spotlight
product innovations
product trends
test talk

spie world

table of contents

fiber optic components
JDS Uniphase gives up Zurich for SDL deal

You've got to give a little to get a little, the saying goes. In order to win U.S. Justice Department approval of its merger with 980-nm pump-laser manufacturer SDL, Inc. (San Jose, CA), optical components specialist JDS Uniphase Corp. (San Jose, CA) has sold its own 980-nm pump laser subsidiary in Zurich, Switzerland, to Nortel Networks (Brampton, Ontario) in a stock deal. The deal also involves certain properties in Poughkeepsie, NY, as well as a series of purchase and supply contracts between the two companies; a provision includes between 10.9 and 16.4 million additional shares as deferred consideration to be paid in the event that Nortel does not meet certain purchase commitments by December 2003.

On the day of the announcement, the deal was valued at $2.5 billion plus $500 million in deferred consideration. The deal closed on 13 February, when Nortel issued about 65.7 million shares of common stock, worth about $2 billion based on a closing price of $29.75 per share. Just days later, the company issued a loss warning and significantly revised projected earnings and revenue growth. The announcement triggered a flurry of shareholder lawsuits and sent the stock price plummeting to just over half its earlier value.

The activity has sent rumors flying about the JDS Uniphase response. As of this writing, the Zurich acquisition is worth $1.3 billion up front, down 48% from the price quoted when the deal was first announced. According to Reuters, JDS Uniphase's Josef Strauz has said that the company is reportedly back in talks with Nortel over the deal, though Nortel media spokesperson Vicki Contavespi says that the company considers it closed. JDS Uniphase media representatives could not be reached for comment.

According to Brian Viccioni, managing director at BMO Nesbitt Burns (Toronto, Canada), JDS Uniphase still benefited handsomely from the sale. "They paid $45 million for the facility in 1997," he says. "That's over 28 times return on your money over three years."

"JDS Uniphase accomplished a couple of things [with the sale]," says Charlie Willhoit, senior equity analyst at JP Morgan H&Q (San Francisco, CA). "They put the business in good hands and lined up long-term contracts with a big customer." Media hints to the contrary, Willhoit considers it unlikely that JDS Uniphase will consider legal action on the deal. "You don't want to sue your biggest customer," he says. "It is what it is."

—Kristin Lewotsky

focus on photonics

Corning, Inc. (Corning, NY) has unveiled plans for a $150 million capital investment in its Corning Optical Technologies Italia (Corning OTI) operations, which specializes in lithium niobate modulators, pump lasers, certain specialty fibers, and fiber gratings. The company also has earmarked another $400 million to build its sixth optical-fiber manufacturing facility in Oklahoma City, OK, slated to come on line in 2004. The news comes on the heels of Corning's announcement to cut 354 temporary jobs at its United States–based optical-components plant.

Despite rumors of the sky falling on Wall Street, private financing continues to be available. Agilent Technologies (Palo Alto, CA) has formed Agilent Ventures, a technology development company that plans to invest between $2 million and $10 million in selected companies for a total of $100 million per year. BTI Photonics, Inc. (Ottawa, Canada) raised $12.1 million in capital, and Fiber Optic Network Solutions Corp. (FONS; Northboro, MA) raised $27.5 million in second-round funding.

The thermal systems unit of Silicon Valley Group (San Jose, CA) is taking aim at telecom, shipping an atmospheric-pressure-chemical-vapor-deposition (APCVD) tool that will be used to fabricate optical waveguides and optical micro-electro-mechanical systems (MEMS) components. Meanwhile, company shareholders approved the merger of SVG with ASM Lithography (Veldhoven, Netherlands). The deal already has received antitrust clearance.

Liquid-crystal switch specialist Chorum Technologies, Inc. (Richardson, TX) has signed an agreement to acquire Polytronix, Inc. (Richardson, TX), which manufactures liquid-crystal displays (LCDs). "It gives us a prime source for liquid-crystal technology," says Wayne Mei of Chorum. The company builds small-scale switches that use nematic liquid crystal as a voltage-toggled polarization controlling material. It will fold in Polytronix as a wholly owned subsidiary headed by current president and CEO Guohe Huan. Polytronix will retain its name and its core business of displays.

details on displays

Speaking of displays, LCD manufacturers Toshiba (Tokyo, Japan) and Matsushita Electric Industrial Co. (Osaka, Japan) have inked a joint-venture agreement to manufacture low-temperature polysilicon LCD panels in Tampines, Singapore. Incorporated in March with an initial capitalization of $431 million, the venture will be funded 67% by Toshiba and 33% by Matsushita. Slated to begin production in July 2003, the factory will produce 55,000 730 mm * 920 mm glass substrates per month by FY '03. The initial investment in the facility is expected to be $1.06 billion.

The state of Pennsylvania has awarded a $1 million grant to establish a Center for Optical Technologies at Lehigh University (Bethlehem, PA), which plans to develop a multi-institutional center for education, research, and technology transfer. Collaborators will include Lucent Technologies, Inc. (Murray Hill, NJ), Corning, Inc. (Corning, NY), and Sycamore Networks (Chelmsford, MA). The Department of Community and Economic Development's Pennsylvania Technology Investment Authority (PTIA) awarded the grant to Lehigh University in partnership with Penn State University, Northampton Community College, and the Ben Franklin Technology Partners of Northeastern Pennsylvania. The grant is supplemented by matching funds from the federal government.

And finally, the U.S. Supreme Court is debating whether scanning a home with a thermal imager constitutes a violation of privacy. Law enforcement officials in Florence, OR, scanned Danny Lee Kyllo's home looking for thermal signatures from the grow lights he reportedly was using to cultivate marijuana. Through the scan, officials gathered sufficient evidence for a search warrant that later led to Kyllo's conviction. The case has been pushed to the Supreme Court on appeals. Florence is just three hours away from Portland, OR, home of thermal imager manufacturer FLIR Systems, Inc.

Kristin Lewotsky

market trends
detectors battle it out; optical wireless set to surge

In a global image-sensor market expected to rise from $2.4 billion in 2000 to more than $6.5 billion by 2007, the trade is poised for change, says a new report from Frost & Sullivan (San Jose, CA). The numbers represent just the sensor and supporting circuitry, without packaging. Ever since complementary-metal-oxide-semiconductor (CMOS) technology began to challenge charge-coupled-device (CCD) technology, the debate has raged over which approach will prevail. The answer appears to depend on the application: CCDs provide top performance for high-end applications, but CMOS technology offers economic advantages for less demanding uses.

According to analyst Nicole Wagner, the market will realign itself over the next six years. In 2000 the market for CCD image sensors was $1.8 billion, which should rise to $1.9 billion by 2007. Over the same period, the CMOS market share should rise from $631.6 million to a staggering $4.6 billion, jumping from a 26% market share to a 71% slice of the pie. "The majority of the overall market growth is due to CMOS, not CCD," Wagner notes.

CCD technology will retain its hold on the scientific and high-performance market, applications for which it is traditionally well-suited. The gains for CMOS will come in the lower- end—but higher-volume—niches, particularly for emerging markets. Wagner cites automotive and hand-held devices as examples. "Those two are going to be using CMOS because they've never used CCDs. CMOS is probably going to take over the lower-end applications." The change reflected by the report provides merely a glimpse at what is ahead. "The drop [in the CCD market] is not as large as it will be after the forecast period," she adds.

MEMS on the move

Tiny but mighty, micro-electro-mechanical-systems (MEMS) devices are poised to grab territory in the consumer market, with sales for that sector expected to reach $1.5 billion by 2005, up from $200 million in 2000, says a report from Cahner's In-Stat Group (Scottsdale, AZ). Applications include digital televisions and displays, motion/vibration sensors, and data-storage devices. Overall, the global chip-level MEMS market should hit $7.1 billion by 2004, up from $3.1 billion in 1999. Meanwhile, over the same period, the photonic switching sector will surge from $2 million to $1 billion, says senior analyst Marlene Bourne. An updated version of the global MEMS report is slated for release by the group later this month.

"As a whole, the technology has kind of reached a turning point," Bourne says. "In the next three years, the promise of the technology is going to become much more of a reality." Look for more on MEMS in the May issue of oemagazine.

telecom trends

It wouldn't be a Market Trends column without something on telecom. The emerging carrier market for free-space optical communications systems—wireless optical network—is driving growth for the technology. Global transceiver revenues are expected to jump at a compound annual growth rate of 90% over the next four years, rising from the 2000 figure of $118.8 million to $3 billion by 2005, reports Allied Business Intelligence (Oyster Bay, NY) in a new market survey.

The technology has been used for years in the campus/enterprise network environment, but according to Andy Fuertes, ABI vice president of communications technologies, a major shift is underway. "The real growth opportunity is in the access network and wide area network (WAN)." By the end of the survey period, access networks will represent 66% of the market, or about $2 billion.

Although a pragmatic short-term solution, wireless technologies eventually will be supplanted by land lines. "That's been the history," Fuentes concedes, but he doesn't expect it to happen anytime soon. "[Laying fiber] in the local loop is going to be a long and costly process. Instead of five to seven years, the transition is going to take more like 15 to 20."

Kristin Lewotsky

optical networking
fiber food chain falters

A year ago the optical networking sector was the darling of Wall Street. Fund managers disillusioned with dot-coms flocked to optical companies boasting market demand for real products, companies logging strings of consecutive high-growth quarters. In the resultant frenzy, stock prices soared. Then last fall a drift began in the sector that has since turned into an all-out slide. Stocks trading in the triple digits last spring are now down by an order of magnitude. Despite the current bleakness in the market, optical-networking market-

research reports predict continuing growth in bandwidth and equipment demand. It's hard to understand what is happening, but by all accounts it appears to be a temporary—albeit painful—phase.


The change appears to be rooted in a softening U.S. economy and in carrier spending, but at a more fundamental level, it has to do with confidence. In 2000, bandwidth demand gave carriers a ferocious appetite for optical-networking equipment, and the sales propagated right down the food chain. "The chance of any of these [components and equipment vendors] missing their earnings numbers was slim to none because we all knew the demand for their stuff was out of control," says Charlie Willhoit, an analyst with JP Morgan H&Q (San Francisco, CA). The normal Wall Street model considers a "reasonable" stock price to be approximately the expected per-share earnings times the company's projected growth. Instead, last year the stock prices for optical component and optical equipment vendors shot up to 200 times and 300 times earnings. "You had a whole sector of companies where growth was very fast and meeting earnings expectations was almost guaranteed," Willhoit says. "If you're a fund manager, you're going to buy those stocks no matter what the price is."

The whole house of cards was held up by confidence that the carrier demand was solid. Then last fall, carrier orders began to falter as the U.S. economy softened, and carrier business models came into question. When bellwether companies like Nortel Networks (Brampton, Ontario) and Cisco Systems, Inc. (San Jose, CA) gave indications of uncertainty in inventory flow, the news sent a cold breeze blowing through the house of cards. "The further we got into December and January, the more we realized that the carriers themselves didn't know what their own spending patterns were going to be like," Willhoit says. Suddenly, uncertainty hit the market, shaking vendor revenue and earnings projections. "When [price-to-earnings ratios] are this inflated, the inherent assumption as an investor is that companies are not going to miss numbers." When major players did just that, stock prices in the space plummeted.

Carrier demand, once a given, is now considered weak at best. "It's very difficult to raise capital in this market, and that's going to put a further squeeze on the carriers, which will ultimately trickle into weakness on the equipment side," says Brian Viccioni, managing director at BMO Nesbitt Burns (Toronto, Canada). "We look at how much money the carriers have in their balance sheets, and it's not that much."

Viccioni says his firm is projecting one carrier bankruptcy a month in 2001. Willhoit speculates that it will be worse. "You have to understand, we had 5,000 competitive local exchange carriers (CLECs) in the United States," Willhoit says. "Companies like Level 3 and Qwest and others are in a very good spot to be major competitors in the long term, but the other 4,980 of these guys are likely to either get bought or go under." On the bright side, the bankruptcies may not have as extreme an effect as some think, Willhoit adds, noting that more than 90% of all the spending comes from the top 15 or 20 carriers.

supply and demand

Analyst Stephen Montgomery of ElectroniCast Corp. (San Mateo, CA) takes a different view of the current market weakness. "This is a very unusual industry—the supply is affecting the demand," he says, referring not to the supply of components but of people. "The telco operators have a lack of engineers that can actually specify what they need. There's a demand, but nobody's home to actually decide what they need and where to put it." In part, he says, the situation is caused by the movement of engineers from carriers to high-dollar equipment and component vendors. "This is an example of the supply of people causing a demand problem," he says.

No matter what the cause, many analysts agree that the situation is temporary. "The demand for bandwidth is there, it's just a question of economics," says Daniel Matviyenko, technology analyst at Sands Brothers (New York, NY).

"It's likely to be a relatively short-term issue, short term meaning several quarters," Willhoit suggests. "I firmly believe we're in the very early days of what's going to be a lot of growth for many years to come in the photonics industry in general. When carriers start spending more money again, optics is going to be one of the biggest beneficiaries."

Kristin Lewotsky

homesubscribecontact us