Monday, September 24, 2007

Investors can cash in as demand for fiber optics takes off

Despite the countless miles of unused fiber-optic cable laid during the dot-com bubble, demand for the high-capacity lines has been rising. And that bodes well for the stocks of companies that produce not only the cable but also the equipment that runs it.

Fiber-optic cable, typically made of ultrapure glass, can carry vast amounts of data via light. During the boom days of the Internet bubble, phone companies buried vast amounts of fiber-optic cable, in part because they assumed that Internet traffic would soar.

Many companies initially laid large cables underground, even though many of the fibers wouldn't be used at first.

In the years since the dot-com boom, engineers have figured out how to move more data through the same amount of fiber, increasing the fiber-optic capacity. As a result, there are still untold miles of unused fiber cable, or dark fiber, in the USA.

But now, demand for new fiber-optic cable is zooming. "Worldwide, we expect double-digit growth rates in fiber-optic cable demand the next few years," says Richard Mack of KMI Research/CRU, a London-based research firm. One key reason: the boom in moving video and audio files via the Internet.

The light fantastic

Watching a video on the Internet sops up far more bandwidth than just surfing websites does. The proliferation of video sites such as YouTube means that consumers have been demanding more and more bandwidth, to move files at faster speeds.

Fiber-optic cable demand should rise 10% in the USA this year, Mack says, and by as much as 15% in China and 20% in India. Each nation has different reasons for high demand:

USA. There's plenty of dark cable left, mainly around large metro areas. And telecom companies are still laying cable. "It's part of forward planning," Mack says. "As we speak, people are putting in more cable than they need."

Demand for U.S. fiber-optic cable isn't coming from companies that are laying fiber for 20 years from now; it's mainly from companies that are connecting houses and apartments to existing fiber-optic lines. Despite all the cable available between cities, telecommunications companies still have to run cable down streets to link homes and offices to the existing lines.

About 1.3 million U.S. households, or 1.3% of all, were connected directly to fiber-optic lines in July, according to the Fiber-to-the-Home Council, a trade group. That number has grown to about 2% of households since then and could reach 25% within three years, says David St. John, spokesman for the group.

Verizon is spearheading the fiber-to-home growth in the USA. It connected about 203,000 new customers to its FiOS broadband and TV services in the second quarter of 2007. The company plans to spend a staggering $23 billion on its fiber-optic network by 2010. "Verizon is betting the farm on it," St. John says.

Helping to accelerate fiber-to-the-home growth is new bendable fiber, which makes it easier to connect apartment buildings to fiber-optic cable. Fiber-optic cable has high capacity. But it can crack or lose capacity if it's bent too sharply. On Wednesday, Corning, the largest U.S. producer of fiber-optic cable, introduced its ClearCurve cable, which it says is as bendable as copper wire — yet has about 3 million times the capacity.

China. Chinese fiber-optic-cable demand has grown about 20% a year the past few years, Mack says, but will slow to about 15% this year because China has already built much of its city-to-city backbone. Still, the Chinese will use a great deal of cable as they prepare for the 2008 Summer Olympics in Beijing.

India. India is still building its Internet backbone, and demand for fiber-optic cable should grow about 20% a year, Mack says.

The biggest player in the fiber-optic-cable business is Corning. And it's a favorite among those who are bullish on fiber stocks. "Our biggest play there is Corning," says Kevin Landis, manager of Firsthand Technology Value fund.

Fiber options

Landis figures that Corning will benefit from the push to hook up households via optical fiber. He also thinks Corning will benefit from international growth. "Even though WorldCom deployed too much fiber across the Great Plains, that doesn't help China any."

Corning's stock performance hasn't lived up to its potential: It's up just 3.3% the past 12 months. Daniel Scalzi, CEO of Matrix USA, a Wall Street research firm, thinks the company has to shore up its balance sheet: "When you look at its profit margin and valuation, it doesn't work for us. They're spending a lot of money to make not enough money. That said, they're in a great business."

Ken Croft, manager of Croft-Leominster Value, suggests Cisco, which makes much of the equipment necessary for fiber-optic telecom. The stock has soared 40.8% over the past 12 months. But it isn't cheap: The stock is selling for 21.8 times its 2009 estimated earnings. (The price-earnings ratio tells you how expensive a stock is, relative to earnings. Lower is better.)

Another suggestion: General Cable, (BGC) which makes copper as well as fiber-optic cable. The stock has soared nearly 80% the past 12 months, and it sells for about 16 times its 2008 estimated earnings. But it's volatile: It's fallen about 15% the past three months.

A final possibility: Sumitomo Electric, a Japanese company with a fiber-optic-cable division.

Friday, September 21, 2007

AT&T aims for 10,000 IPTV installs per week

AT&T has reduced the average installation time for its U-verse IPTV service by 13% in the past month, according to Ralph de la Vega, the carrier’s group president of regional telecommunications and entertainment. And the company hopes to continue reducing installation times and increasing the pace of service activations.

Recent process improvements have allowed AT&T to reduce its average U-verse installation time from 7.5 hours to 6.5 hours over the past month, de la Vega said at an investor conference this week.

“My best region is doing 5.8,” he said. “My best district is doing 5.6, and my best technician is doing 4. So I like the trend.”

In recent weeks, AT&T has been averaging between 7,000 and 8,000 installations per week, he said. “Ten thousand is very doable.”

Earlier this month, the company announced having amassed 100,000 subscribers for the IPTV service.

Along with historical improvements in technology costs, de la Vega also cited improvements in video encoding technologies that allow for better use of network bandwidth. “Today we code using 8.5 Mb,” he said. “We now have codecs we’ll put into our network effective next month that do it at 6.5 Mb.”

Tuesday, September 18, 2007

U.S. Start-Ups Set Sights on India

SAN JOSE, Calif. -- Rehan Jalil founded his wireless-broadband company WiChorus Inc. two years ago and based it here in the heart of Silicon Valley. But when it actually starts selling its gear to phone companies next year, WiChorus won't be looking for customers in California or anywhere else in the U.S. The company's target market is thousands of miles away -- in India.

In a twist on globalization -- and a nod to India's fast-growing economy -- an increasing number of high-tech start-ups, like WiChorus, are basing their operations in the U.S. but setting their sights on Indian customers.

[Indian Connection]

Many of these Silicon Valley companies, often headed by Indian-born entrepreneurs, sell specially designed, low-cost products particularly suited to people in developing nations.

Examples include Bubble Motion Inc., based in Mountain View, Calif., which sells a voice-messaging service popular with non-English speakers who can't or don't want to type out text messages on a phone keypad. (Though some customers speak English, others are illiterate or use local Indian dialects that don't employ the Roman alphabet.) Biotech outfit ReaMetrix Inc., of San Carlos, Calif., develops low-cost diagnostic tests to manage ailments like diabetes and HIV infection. And Mobio Networks Inc. of Cupertino, Calif., is working with several Indian phone carriers to offer via cellphone free and low-cost entertainment, like sports information and gossip. All are funded by U.S. venture-capital firms.

Some of these start-ups are also targeting U.S. or European customers, or could do it down the road. But for now, most are following the made-in-the-USA, sold-in-India model, trying to tap India's rapidly expanding consumer market in hot industries like wireless technology and life sciences.

With these companies, "the market is Indian. The entrepreneur might be Indian," says Navin Chaddha, a managing director with the Mayfield Fund venture-capital firm, which is an investor in WiChorus. "But the problem is being solved in the U.S. for a market that sits outside the U.S."

Even though their products are destined for foreign shores, often these companies say they must be based in the U.S. to have access to specialized engineering talent, U.S. venture capital, or to protect intellectual property.

The trend represents the latest wrinkle in Silicon Valley's relationship with India. Engineers from the country have long migrated to the San Francisco Bay Area to get graduate degrees, find jobs and start companies. More recently, Silicon Valley companies have outsourced customer support and even some product-development work to India, though some have pulled back as labor costs there have climbed.

Venture capitalists also have begun investing directly in Indian companies, targeting the domestic Indian market. According to the National Venture Capital Association, a trade group, U.S. venture capitalists sank nearly $932 million into Indian companies last year, up from $583 million in 2005.

But WiChorus's Mr. Jalil, 37 years old, says many Indians prefer to work for bigger, brand-name firms and are hesitant to sign on with start-ups, which are seen as risky. He also says the U.S. offers a bigger, deeper pool of engineers with more expertise in a wireless technology called WiMAX and other arcane specialties critical to WiChorus's success. (WiMAX is similar to the Wi-Fi technology that creates Internet "hot spots" in cafes and airports, but operates over a much larger geographical area and can sometimes be accessed on the go, such as from a moving car.)

Many of Mr. Jalil's most-important employees are veterans of local high-tech companies, most notably Cisco Systems Inc. And his investors are big-name venture capitalists from Menlo Park and Palo Alto, which are both near his company's headquarters.

"Silicon Valley is the only place you could do this," asserts Mr. Jalil, an engineer who was born in Pakistan but educated in the U.S. He started WiChorus in late 2005 after leaving another wireless start-up, Aperto Networks, because he says he wanted to create lower-cost broadband technology for the developing world.

WiChorus does employ about 15 people in Hyderabad, a city in India well-known as a high-tech hub. But those workers mainly build network-management software, which Mr. Jalil calls "very specific, contained work," though it is critical to WiChorus's product.

WiChorus's 45 employees and assorted consultants in San Jose -- who work in cubicles and labs on the third floor of an office building with eye-catching, pumpkin-colored walls -- are the ones doing the hard-core product innovation, Mr. Jalil says. They include researchers with Ph.Ds from the University of California at Berkeley and managers like Sheldon Gilbert, the company's Massachusetts Institute of Technology-educated head of business development who founded another wireless-broadband company called Ensemble Communications. WiChorus's head of engineering, Kamal Avlani, spent 10 years at Cisco developing high-end routing devices for directing Internet traffic.

WiChorus is focusing on India first because WiMAX is sorely needed there, according to Mr. Jalil. The Indian government is pushing to increase broadband penetration but is now stymied by a lack of phone lines to offer high-speed access.

Of India's more than 1.1 billion people, only about 40 million subscribe to a traditional landline phone service, according to the Telecom Regulatory Authority of India. And not all of those lines are capable of transmitting data at broadband speeds, Mr. Jalil says. As of July, there were 193 million wireless-phone subscribers.

WiChorus says its gear can help offer Internet connectivity without the phone lines for as little as $15 a month. That may still be too expensive for the average Indian, who makes less than $900 a year, according to the World Bank, but it is affordable for higher-skilled workers. And prices could dip lower, just as charges for cellphone services have dropped in India over the past several years, according to Mr. Jalil.

Mr. Jalil says the reason that phone carriers using WiChorus's equipment will be able to charge so little is that the company has simplified products such as cellphone base stations (which serve as hubs to let the phones communicate), taking out nonessential features and functions. The company announced yesterday that it has received nearly $25 million in financing from U.S. investors that include the Mayfield Fund, Redpoint Ventures and Accel Partners.

Not everyone is convinced the new offshore business model is a good one. Rob Chandra, a managing partner at investment firm Bessemer Venture Partners in Menlo Park, says companies need more than great engineering talent to build products the developing world will buy.

"I am skeptical of companies that can know enough about what Indian consumers and enterprises need if the start-ups' management is sitting in Silicon Valley," says Mr. Chandra.

Mr. Jalil notes that most big Indian telecom carriers buy their core infrastructure from Western companies, like Finland's Nokia Corp. He is convinced WiChorus's technology is very relevant to India. "You can really bridge the gap between the emerging world and the developed world by bringing broadband connectivity," he says.

They're talking 'bout FTTH at ECOC

Is FTTH more alive in Europe than it may at first appear? Click here to find out.

Tuesday, September 11, 2007

Go Buy Corning Stock - Info from Standard & Poor's

S&P says demand for the company's LCD panels and fiber-optic gear will strengthen and rates the stock a strong buy

We contend that Corning (GLW; recent price, $24.71) is well-positioned to benefit from growing demand for both liquid-crystal display panels and fiber-optic telecommunications equipment. By our analysis, Corning's markets for LCD glass panels will remain strong, while the company's investments in facilities and its relationships with leading market share television manufacturers should yield higher sales.

We also forecast that fiber-optic sales to the telecommunications sector will strengthen over the next two years. We expect strong revenue and earnings-per-share gains in 2007 and 2008.

In our view, the shares are undervalued vs. those of peers and warrant a 5-STARS (strong buy) recommendation.

The telecommunications segment produces optical fiber and cable and hardware and equipment products for the worldwide telecommunications industry. A significant portion of Corning's optical fiber is sold to its own subsidiaries. The company's hardware and equipment products include cable assemblies, fiber-optic hardware, fiber-optic connectors, and optical components and couplers.

In April, 2007, Corning announced plans to reopen a portion of its Concord (N.C.) optical fiber manufacturing facility as a result of volume growth in the optical fiber market, which has been greater than 15% over the past two years. In July, 2007, the company announced plans to expand its optical fiber manufacturing facility in China based on continued growth in that country's optical fiber market. The expansion is expected to be completed in 2009.

Fiber Optic Connector, Mechanical Splice Global Market Forecast

The global fiber optic connector and mechanical splice consumption last year (2006) was $1.396 billion. The consumption value will increase with strongly rising quantity growth partially offset by declining average prices. By the year 2011, the worldwide consumption value is forecasted to reach $3.451 billion.

North America led in global consumption with 47.3 percent or $660million in 2006. North American consumption will expand in value to $1.43 billion by 2011, as shown in Table 1.1.1. North American connector consumption will be driven by the proliferation of relatively shorter links used in private data and local loop networks. European fiber optic connector consumption, 21.2 percent in 2006, is led by the European Union member states as they transition to open competition in delivery of broadband services to business, as well as residential customers. The fastest growth in connector consumption will occur in Japan/Pacific Rim with a forecasted average annual growth rate of 25.5 percent (2006-2011). Rest of the World (including South America) region stimulated by favorable national economic policies and the trend toward telecom liberalization also has an impressive forecast of annual growth.

Customers agree: Fiber is good for you - Television companies lead satisfaction survey

Satellite and cable television services might have more formidable competition in telephone companies than they might have imagined, judging from customers' reactions.

A study scheduled for release Tuesday found that FiOS, the fiber-optic TV service from Verizon Communications, scored the highest on a recent customer-satisfaction survey.

Adding those who are very or somewhat satisfied with their current TV provider, FiOS scored 96%. DirecTV is second with 89%, then Dish Network with 82% and Comcast and AT&T U-verse, another fiber-optic service, tie at fourth with 73%. Cablers Cox, Cablevision, Time Warner and Charter, in that order, bring up the rear.

The survey of 1,586 consumers is from ChangeWave Research.

Run by Fox News personality Tobin Smith, ChangeWave draws on an alliance of 10,000 members who are wealthier than the general public and earlier adopters of new technology. ChangeWave surveys its alliance for the purpose of locating investable Wall Street trends.
About 4% of the alliance members are fiber-optic TV subscribers, 27% are satellite subscribers and the rest are cable customers.

"What's perhaps most striking is that none of the top players in terms of customer satisfaction are cable companies," the report indicated.

When grouped by type of service, only 13% of cable customers are "very satisfied" with their TV provider, compared with 32% of satellite customers and a hefty 45% of fiber-optic subscribers.

On the flip side, cable comes out last again, with 6% saying they are "very unsatisfied," compared with 2% for satellite and fiber-optic.

When "very satisfied" and "somewhat satisfied" are lumped together, cable is at 70% and satellite and fiber-optic tie at 85%.

"Satellite subscribers appear far more content with their TV service than cable subscribers," the report found. "Although based on a smaller sample, an impressive 85% of fiber subscribers gave the newest TV technology a thumbs-up."

Naturally, the survey sought to predict the future, a profitable endeavor if ChangeWave can call it correctly. It found that 13% of its alliance are considering a change, and 44% of those plan to switch to fiber-optic.

ChangeWave director of research Paul Carton calls that "a huge eight-point jump since the previous survey."

The survey found 40% of those planning to change their service provider will switch to satellite and only 15% will switch to cable, with the majority considering Comcast and Time Warner/Road Runner.

The findings, however, are contingent on the ability of the fiber-optic providers to expand their coverage fast enough to keep up with the demand, which is no small feat.

U-verse, which got a later start than FiOS, only has about 100,000 subscribers nationwide, mostly because its infrastructure is not built out much. But AT&T has said that it will spend $6.8 billion to build its network so that it will pass 18 million homes by the end of 2008. FiOS, which passed the 1 million subscriber mark in June, already topped 5 million homes and will pass 8 million by year's end.

From 2007-11, TV provided by phone companies in the U.S. will grow their subscriber ranks by 52.5% annually to 14 million. Cable will grow at less than 1% to 67.7 million and satellite will grow at 1.7% to 30.5 million.

"These findings are quite bullish for fiber-optic TV," Carton said of the ChangeWave survey. "Not all TV services are equal."

Thursday, September 6, 2007

Verizon Shoots FiOS Infomercials

Telco Targets Comcast Markets With ‘My Home 2.0’

Verizon plans to hype its FiOS product this fall through infomercials modeled after reality shows such as ABC’s Extreme Makeover.

The telco said Wednesday that it will pick five Pennsylvania homes this month to wire with FiOS TV and FiOS Internet. The infomercial series, called, My Home 2.0, will bring “the world of high tech into the homes of regular families,” Verizon said. “Segments will feature an energetic trio of technology gurus dispatched to analyze each family’s particular situation, solve problems and set about transforming their lives through technology.”

Verizon said it will pick homes in the Philadelphia area, where Comcast is the incumbent operator.

It plans to begin filming Sept. 12 in the Bucks County community of Yardley, and will wrap up with a communitywide block party on Sept. 15 as the family’s home-technology makeover is unveiled.

Verizon said it will pick two other southeastern Pennsylvania homes for My Home 2.0, and that later this fall, it will select two Pittsburgh area homes for “technology makeovers” that will be used for the series.

The telco didn’t say which networks will carry the infomercials.

Wednesday, September 5, 2007

U-verse growing rapidly

San Antonio-based telecommunications giant AT&T Inc. said it now has 100,000 subscribers to U-verse, the pay-TV service it rolled out to compete with cable rivals.

The company also said the copper and fiber-optic network over which it delivers video programming now passes 5 million households, 3 million shy of the 8 million it's projected to reach by the end of this year.

The new subscriber landmark comes about half a year after AT&T delayed its U-verse expansion to fix technical glitches that dogged early customers. The company ended last year with just 3,000 customers, most of them in its San Antonio launch market, leading some analysts to question whether it effectively could use the platform to reach customers nationwide.

"Since the end of last year, we've added 97,000 new customers, and we think that shows good progress," company spokesman Wes Warnock said. "We're very happy with where we are at this point."

This month, AT&T will begin expanding U-verse's interactive features to include games and the ability for customers to check stocks, weather and Yellow Pages listings via their TV remote, Warnock added. Dallas will be the first market where such features become available, and others will follow in coming weeks.

The company also plans to launch at least five additional high-definition channels in coming weeks, Warnock said.

"We think those interactive features are what help differentiate between us and cable," he said. "And this is just the beginning."

AT&T is eager to get into the video business as cable providers such as Time Warner Cable and Comcast Corp. have moved aggressively into the residential and business phone market. Both phone and cable companies are eager to lure customers with a so-called "triple play" of telecom services that includes phone, video and high-speed Internet service.

Rival phone company Verizon Communications Inc. is installing new fiber directly to customers' houses to deliver its video service called FiOS.

While standard phone service has become less profitable for telecom providers, Frost analyst Le Keough said consumers are spending more on other services such as broadband access and video. That increases the urgency for phone companies like AT&T to expand into video.

"Households spending on those services is increasing faster than the rate of inflation," Keough said. "If you can exploit that, it's a good market to be in."

U-verse's rollout delays and technical glitches last year touched off speculation that AT&T would seek another way to enter the video business — buying a satellite TV provider, for example. But analysts said the company's brisk and continued expansion has hushed much of that talk.

"The U-verse deployment sounds like it's actually starting in earnest," Keough said. "If they managed to fix their technical issues, the rest of the rollout should be successful."

Warnock said AT&T remains committed to U-verse and has worked through its technical issues. It has expanded the service market by market this year, reaching 30 metro areas, including Los Angeles, Houston and Milwaukee.

In May, AT&T said it will spend up to $1.4 billion more than planned to continue expanding U-verse. That boosts its projected cost to $6.5 billion by the end of 2008 from previous estimates of a little more than $5 billion.

What's more, in December the company will announce plans to expand U-verse into the Southern states served by phone company BellSouth Corp., which it bought this past year. That announcement, Warnock said, will expand its rollout beyond earlier projections that its network would pass 18 million homes by the end of 2008.

Sterlite launches optical fiber for tight radii

SEPTEMBER 4, 2007 — Sterlite Technologies Ltd. will launch BEND-LITE (E) single-mode optical fiber at ECOC 2007, Booth 17095. The fiber enables fiber to the home/premise (FTTx) with a small bending radius and cable mounting inside and outside premises.

It reportedly enables tighter routing and higher fiber density for component design and fiber deployment in central offices, subscriber equipment, backplane solutions, and premise wiring. BEND-LITE (E) suits triple-play voice, video, and data service networks and access network installations. It is designed for high resistance to additional losses, due to macro bending at 1310-, 1550-, and 1625-nm wavelengths.