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.
"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.
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