A couple of days ago, I wrote my
Photon Manifesto. As I said then, of all the big bets I think we can consider for growth over the next decade or two, photonics -- specifically optical networking -- is my pick for the biggest winner.
Some readers wrote to ask if I'd forgotten to append to that column my list of recommended stocks. Nope, it's not quite that simple. That will be coming out over the next few weeks -- and, probably, the next few years. (Thanks, too, to the droll soul who asked who made photons, and where one could buy a few ... )
Today I want to give you my schematic view of investing in the optical market, speaking broadly, and get some of the easy stuff out of the way first. Remember my warning the other day that I define "optical companies" in a fairly idiosyncratic way, and I'm far from being a purist here: I like pure plays as much as the next greedy investor, but for now, at least, I'm happy to buy companies that handle datastreams of all sorts, not just via optical media and devices. Over time, we'll need to shift investments to the more pure-play companies, but for now -- and especially in this frightening, chaotic market -- size means at least a little security, and buying into this game on the big-company level is a safe start. But not the whole game, to be sure.
My model for investing in the optical world has three concentric rings.
At the center, I see big to huge companies which today are laying the groundwork for a big future in photonics. Because photons are roughly 10 to 100 times faster, net, than electronics in networking, there are huge cost and capacity benefits to moving data as light waves -- "riding the light," as fiber-capacity reseller
says in its TV commercials.
The speed with which big companies have perceived the oncoming shift to optical networks -- and especially, to all-optical networks -- has varied considerably. But this market is going to be so huge and rich that you don't have to be first in line to prosper.
One ring out from those big and relatively safe companies lies a second group of optical suppliers that vary greatly in size -- this just isn't a market which lends itself to investment analysis solely by company size -- but represent far more focused optical bets. These are companies that will rise or fall depending on how well they muscle aside their cohorts in this ring -- and to some extent, how effectively they challenge the first group of much larger and more powerful firms.
They are unlikely to dislodge any of those center-ring players, though a few will push their way into that league, and few more will be acquired by those largest center-ring companies.
Finally, the third ring out includes very pure-play companies, again of varying, but generally smaller, firms, which are grabbing a piece of the optical pie with bold and highly risky new technologies and ways of applying well-understood technologies.
Today, I want to cover that easiest, center group. I wouldn't build an optical portfolio from only them, but a portfolio -- based on making money on the success of photonics -- that doesn't include a substantial dose of these players is not a well planned portfolio.
For that list, and some not-so-gentle dissection of its members, see Part 2 of my column.
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long Qwest, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at