Advertisment

VCs optimistic of US networking sector

author-image
CIOL Bureau
New Update

SAN FRANCISCO: Nothing to worry about the falling networking stocks. A focus

on costs will check this trend and put them on a growth path. This was the

essence of the report from the Calif.-based venture capital firm, Crescendo

Ventures. The report, released late on Tuesday, said optical networking firms

are positioned for large returns during the next decade, though their short-term

outlook currently looks grim.

Advertisment

"The Internet is here to stay," report author and Crescendo

principal Jeffrey Yu told Reuters. "Demand for capacity is going to

continue to increase and the only means to meet that demand is through

optics," Yu said, adding that, "We're going to see the Intels of the

optical world emerging in the next 10 years."

Judging by the investments, other venture capitalists also share Yu's view.

Private money continues to pour into the networking sector, especially into

optical component makers, even as public market investors are fleeing from it.

Multi-million dollar funding deals for networking start-ups are announced daily

by venture capitalists.

However, shares of listed networking companies continue to be pummeled in the

stock markets and networking infrastructure vendors expecting a quarterly loss,

amid an economic slowdown and curtailed telecom spending.

Advertisment

But Yu predicts that problems will continue to plague networking companies

for the foreseeable future. The first problem is technical. "Today, systems

being deployed can transmit 10 billion bits of data per second. But to achieve

an industry goal of 40 billion bits of data per second, it will require

breakthrough devices, he said. "Today you're able to club together systems.

But to make this commercially viable, our guess, is it will take a couple

years," Yu added.

The second problem involves the cost factor. "Service providers are

finding the costs of infrastructure too high. To really be able to bring optics

to the end user, we need to bring costs down. Since we've grown up on

performance, it's very difficult to change that mindset," Yu said of an

industry where engineering can overshadow business fundamentals.

Networking firms have to develop new materials and processes for making

integrated components, something that financiers such as Yu expect, will be

addressed through venture-backed start-ups. Yu said if costs of components drop

sufficiently, carriers will even be able to provide fiber optic connections to

end-users.

(C) Reuters Limited 2001

tech-news