said, today I want to cover the five companies I think lie at the heart of a reasonable photonics portfolio, the companies in the center ring of my three-concentric-rings investment model for photonics.
The companies I put in the center ring:
Lucent and Nortel are trying to knock each other out in technological leadership in photonics. I think Lucent is the likely bigger winner, long term -- by which I mean three to five years from now and on out beyond the horizon -- but Nortel's taking a chunk out of their hide now, and will continue to for the next few years. Plus, the contest is hardly decided.
Lucent CEO Rich McGinn is taking a page out of Cisco's playbook, buying in advanced R&D companies and striking deals with them, to speed Lucent's progress in optical networking. Just yesterday Lucent announced a joint venture with white-hot
to create a new company,
TeraBeam Internet Systems
, to build laser-based networking tools. Lucent already had two important in-house laser ventures,
It's not clear whether Lucent will be tossing some of that technology into the new TeraBeam Internet Systems basket, along with the $400 million-plus in cash and patent licenses it has agreed to contribute.
Laser-based networking can be blindingly fast, and relatively quick and easy to install. But current laser-networking technology doesn't work well through fog, heavy rain and some especially dense pollution, so it's not a complete answer. Lucent and TeraBeam want to solve those problems.
Nortel has been buddying up to smaller high-tech R&D shops too, buying optical-switch maker
for $3.25 billion last month, and optical long-haul developer
in January for a similar amount. Neither had shipped a product when Nortel bought them -- a classic "R&D by acquisition" strategy for Nortel. Xros, especially, is intriguing, because it's working on the all-optical domain-switching problem, perhaps the biggest and most rewarding problem today in photonics, about which you'll see more here shortly.
Despite its dominance of the networking market, Cisco was not a big player in photonics until its purchase last fall of
for $7.4 billion in Cisco stock, followed shortly by its purchase, just before Christmas, of the optical networking businesses that had been built in Europe by
. That ran another $2.15 billion, in another all-stock deal.
Ten billion is a pretty good bet, but Cisco's just getting started. Look for more and larger investments in leading-edge optical-networking suppliers this year. CEO John Chambers has gotten religion on photonics, and believes he can eventually edge aside both Lucent and Nortel in this vast market.
JDS Uniphase is well known to
subscribers. Since the company was formed last summer by the merger of optical-networking suppliers Uniphase and JDS Fitel, it's been a barnburner, a great example of one of my second-tier companies elbowing its way into the center ring.
JDS Uniphase just bought
Cronos Integrated Microsystems
for $750 million. Cronos' products use silicon instead of electromechanical devices for optical switching. JDS Uniphase hopes to scale up the Cronos technology and apply it to very large optical-switch arrays.
Of all these companies I put at the center of the optical world, none is as consistently hungry and aggressive as JDS Uniphase.
Finally, my old favorite, Corning, the glass wire people, appears in this group. Up from around 12 to over 150 over the past year -- and down to around 100 this week, Corning is the world's leading supplier of the fiber-optic cables that are the core of the present boom in optical networking.
In some ways, Corning is supply-constrained: it sells out its production capacity many months ahead, and
sold out. Building additional capacity is neither quick nor cheap -- but it belongs, I am convinced, in an optical core-holdings list.
That's it: my Big Five optical companies I think ought to form the core of an optical-technology portfolio. Time to establish positions in them?
Probably not. This market smells to me like it still hasn't formed a bottom, a fear reinforced by last week's short-lived bounce. But when you feel like your stomach has settled down enough to start buying tech again, think optical.
In the weeks to come, I'll talk about my second- and third-ring companies, and I'm sure we'll argue a lot in emails about those.
The Fox News Channel
this weekend, where I'll be talking more about the power of the photonics revolution.
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 Lucent and Cisco, 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