The specialty fiber market is at a very interesting stage, due in part to inaccurate forecasting by industry analysts and the greed of some companies that tried to make a fast buck from the telecom boom. As a result, a large number of startups have entered the industry in the last couple of years. All the way through the telecom boom, Fibercore Ltd. had just three main competitors. Now, it has anywhere between 10 and 50 exist, depending on which report you read.
Why this sudden increase? Just as the telecom boom was ending, analysts incorrectly predicted that the industry was set to be worth around $1.4 billion by 2007. The promise of a virgin market and huge potential rewards prompted venture capitalists to infuse capital into startups, which created a glut of new companies offering “me too” products.
These companies are now damaging the market. They have tended to have a polarized approach—either focused toward highly specialized, laser fibers priced at hundreds of dollars per meter or toward large volumes (1000 km per annum is “large” by specialty standards) of fiber-optic gyro or hydrophone fiber offered at rock-bottom prices.
Ultimately, volume is the key. It’s possible to sell fibers at several hundred dollars per meter and lose money every time—believe me! Yet without genuine experience of volume manufacture to high specifications and, more importantly, tight tolerances, future price promises become little more than empty “guesstimates.” Clearly, this hurts the industry as a whole because it encourages the market to see specialty fiber as a commodity, focusing on volume and price rather than quality and performance. This is both ill-advised and unsustainable.
Furthermore, these new entrants into the industry will set the market’s expectations of reduced costs and low-performance fibers for years to come. I believe the legacy of this approach will outlive many of its creators and detrimentally affect the rest of the market in the process. Experience has shown that the longer a company has been in operation, the greater its understanding of its target-market technologies; and the greater the total volume manufactured, the higher the quality of the product. In the current environment, the market doesn’t have a great deal of supplier loyalty. So as prices are driven lower, some purchasers are sourcing products with cost as the only specification. Quality, it would appear, is of secondary importance.
Despite the nuclear winter that has beset the telecom industry in recent years, I do believe that some developments are brewing in the market. When it comes to telecom components manufacturing, there is a lot of activity in China. Recent years have seen manufacture of these components move toward areas with low labor costs and away from Europe and the U.S. During a visit to China in 2002, I saw 13 erbium-doped fiber amplifier (EDFA) manufacturers in South and Central China with hardly any business. When I returned this past October, though, I met five manufacturers that had won new business or were on the verge of being awarded new contracts. These contracts were historically producing components for use in the U.S. and Europe and to fuel the Japanese datacoms boom. More recently, an increasing fraction of production appears to target indigenous use.
The other significant market for specialty optical fibers is military applications. Buyers within the military industry tend to be conservative and prefer to purchase from established companies, unlike the now “fickle” telecom market. This is mainly due to product development and service life cycles that may easily exceed 20 years, coupled with a requirement for continuous supply that looked unfavorably on newcomers. I remember when telecom was a similarly challenging proposition some 10 to 15 years ago, until the “old boys” network was challenged and successfully broken by the likes of Ciena.
Most startups have a very old-fashioned view of the military market, believing that the industry is still living in the Reagan era when unlimited budgets were at the disposal of the Department of Defense for the likes of the “Star Wars” program. With the emphasis now on homeland security, budgets are a great deal more focused. Current military applications for optical fiber include SAMs (surface to air missiles), surveillance and targeting drones, fixed-wing aircraft and helicopters, gun sights, and hydrophones, which can be used both on and off the battlefield.
To sum up, the telecom industry is certainly active, but whether or not it’s moving in the right direction remains to be seen. The danger is that specialty single-mode fibers will be unnecessarily commoditized, with volume production and cost taking precedent over fitness for purpose and performance. This model is destined to fail in the long term and be the ultimate demise of those who created it. In the military sector, the focus for both fiber and components used in tactical deployments must remain on quality and performance, ahead of cost and volume.