Friday, April 15, 2011

Trends in Communication Networks and Optical Chips

 NeoPhotonics as a Showcase of Trends in 
 Communication Networks and Optical Chips 

Optical devices continue to play a growing role in communication networks. In the current setting, the upgrowth of the technology is spotlighted by the initial public offering (IPO) of NeoPhotonics Corporation.

The market for communication networks has enjoyed strapping growth for decades on end. In this environment, NeoPhotonics produces hardware modules which can be used to increase the capacity and reliability of high-speed networks while reducing the cost and size of the hardware. Due to the boons of optical devices on integrated chips, the technology is destined to to play a growing role in the industry.

The bulk of the hardware units to date rely on the hookup of discrete components in order to process the signals. The makeshift result is a clunky system marked by great complexity and high cost in tandem with low reliability.

A better approach is to combine a multiplicity of functions on a single slab of silicon. The benefits of a photonic integrated circuit (PIC) include high speed and high reliability.

On the downside, the initial cost of designing the hardware and building the production line is apt to be a lot higher. On the other hand, the unit cost associated with mass production can be far lower.

In a representative year, worldwide traffic on the Internet swells by 45% or so. According to one estimate, the flow of digital signals will burgeon at a compound annual growth rate of 34% until the middle of the 2010s.

From the standpoint of the vendors, the market for optical hardware is slated to expand along with the groundswell of digital traffic. Depending on the niche, the revenue stream is expected to rise at an annual rate of 15% to 42%.

Within the field of optical platforms, NeoPhotonics garnered sales of $155 million in 2009. The intake comprised an increase of 16% over the previous year. During the first 9 months of 2010, the revenues of $133M amounted to a rise of 19% above the corresponding figure for the previous year.

In terms of profits, the company suffered a net loss of $6.8M in 2009. During the first 9 months of 2010, however, the firm enjoyed a net income of $2.9M.

As is often the case after an initial public offering, the price of NeoPhotonics stock ran into a spate of turbulence in the stock market. Even so, the prospects for the equity look promising over the longer range. If the company can keep up its momentum on the business end, then the upswell of sales and earnings is bound to lift up the equity in tandem.

Read more on Trends in Communication Networks and Optical Chips.

*       *       *