Optical Vendors: fighting for scraps

Last week, analyst firm KMI Research came out with a report predicting that after being stalled for years, the optical networking market is going to change gears, and predicted that the market would grow at a 12 percent compound annual growth rate (CAGR) through 2009. This market, which includes SONET, SDH, DWDM, DXC, and OXC products, hit $7.6 billion in 2003 and should reach $15.3 billion in 2009. They were quite bullish about the prospects of the long haul optical gear market. Fast forward a couple of days and Ciena and Sycamore Networks report their earnings, with a bit more pessimistic point of view. Sycamore on the conference call pointed out that it had hired an investment banker to explore strategic options.

This despite the news that Sycamore had beaten Ciena and Nortel and snagged Sprint as a customer. This along with their GIG-BE win, the company’s products have been selected for two of the most important contracts out there. “Despite these successes,” Pacific Crest Securities analyst Tim Daubenspeck told the Daily Deal that “finding a buyer could be tough for Sycamore. It’s a small company with essentially one product and a ton of cash. Someone might buy them for the cash and the value in their technology, but then again I don’t know of anyone who would want to enter that market.”

Sycamore has had tiny bit of good news, but things are getting downright depressing for Ciena. Light Reading is speculating that the downturn may cost CEO Gary Smith his job. “I’d say he’s got one more quarter to go,” says one investment source who holds no Ciena shares. “One more quarter of disappointment and the sh*t really starts to hit the fan.” Smith might pay the price for a broader market problem.