High in Fiber
Baltimore's growing fiber-optic industry
Baltimore magazine, March, 2002
On May 24, 1844, the most famous message in Baltimore's history was tapped out in the Mt. Clare train station on Pratt Street and carried on a wire line as a series of electromagnetic charges to the Supreme Court building in Washington. “What,” the first intercity telegraph asked, “hath God wrought?” Nearly 160 years later, the region is poised to become of a multi-billion-dollar fiber industry that’s taken the telegraph light years into the future.
In April, 1994, Larry Huang was mulling a job offer from his old Georgia Tech fraternity brother, Patrick Nettles, to join him at the fledgling Ciena Corporation in an executive sales position. Huang placed a call to a vice president he knew at Sprint. He wanted to know whether a major phone company would really have any interest in the multiplexing devices a start up company in Linthicum wanted him to sell. There was a lengthy pause at the Sprint end of the line.
Huang started to feel embarrassed for having even raised the subject. Finally the Sprint executive said, “Larry, if you could do what you just described, it would be like me walking out of my office and finding a pot of gold on my secretary’s desk.”
Nettles, who had been brought to Ciena earlier in 1994 to market the inventive genius of David Huber, says that it was when Huang told him that story (he joined the company the next day) that Nettles really knew he was onto something big. Something more than just another big idea with long-term potential. Something that could revolutionize the way we communicate, the speed with which we communicate, and, importantly, the cost of that communication.
And, as it turns out, that was only part of the vision David Huber has for telecommunications. But it’s already enough to have made Ciena a $3 billion-plus company despite the problems high-tech stocks have endured for the past 18 months; to have prompted a bitter split between Ciena and Huber, who has now founded another company through which to pursue his ideas; to attract or launch two dozen like-minded companies in the area; and finally, to give fiber-optics a chance to be the entry into the technology business that Baltimore has been searching for decades to develop.
It has been more than a couple of decades ever since he was pursuing a doctorate in electrical engineering at Brigham Young University that 51-year old David Huber has been driven by the idea that in the modem marketplace there is not just a “want,” but a need to be able transmit information more efficiently and cost-effectively. Much more efficiently. Much more cost-effectively.
Enter the multiplexer.
Imagine that you are sending all the information that comprises voice, data, and image transmissions in a fiber-optic line. Suppose the line gets “filled up.” How do you transmit an additional quantity of information? Do you replace your original line with a bigger one, or do you install a second line? What happens when both of those are filled up?
Huber wanted to take an existing concept developed by Lucent Technologies and others and expand it dramatically. He wanted to take the information carried by multiple lines, pass all that information through a device that would separate the information to be carried on up to 16 different colors of light, and enable a single line coming out of the other side of the device to transport all of that information downstream. That device, housed in a simple looking metal box, which performs what, to most of us, is even more magical than pushing a switch in our house and having lights come on in the living room, is a multiplexer.
And the bottom line of what it does is save telephone companies like Sprint a lot of money. Hundreds of millions of dollars.
Having spent the '80s in several different telecommunications jobs after earning his Ph.D. in 1980, Huber joined General Instrument Corp. in 1989, where he managed a lightwave research program in Philadelphia to develop fiber-optic-based technologies by which cable companies could push more television channels through their lines. He left in 1992 after the lab was closed, taking with him his patents and a burning desire to run his own company. He founded Ciena and began searching for venture capital funding.
Which is what led to the meeting between Huber and Pat Nettles late in 1993. Nettles, a big, burly graduate of Georgia Tech, had turned around a telephone equipment manufacturer and moved on to a software company. Now he was looking around for something new and challenging. Jon Bayless, a venture capitalist who was an associate of Nettles, knew of Huber but didn’t think much of Ciena’s chances if it didn’t have someone with business experience managing the operation. Bayless suggested the entrepreneurial idea man and the manager have a Conversation.
Nettles flew up to Philadelphia and met Huber, who struck him as very formal and thoughtful, but not very savvy on the ways of starting a business. “It was pretty clear he was struggling to figure out how to turn his concept into a company,” Nettles says.
He also got a rough demonstration of the technology Huber had invented. What Nettles saw that day, he recalls dryly, was “not quite a prototype.” Using only a lab bench full of optical spectrum analyzers, power meters, and other gadgets, Huber showed him how optical signals could he “combined and amplified at one end of a route and then “filtered into individual streams at the receiving end.”
“It was very crude demonstration of the technology, but it was enough for me,” Nettles says.
Ciena's climb to multi-billion dollar status was a quick one. After their Philadelphia meeting, Huber and Nettles flew to Dallas to secure $3 million in start-up funding from Bayless’s firm, Sevin Rosen Funds. There, they recruited a management team and searched for a location to house the company. Nettles says they ruled out Silicon Valley as site because the competition for engineering talent would be too fierce. They liked D.C.’s tech corridor, where they could feel at home amidst the hulking telecom office buildings of MCI and others. But they realized, as Nettles put it, that “this company would have more intense manufacturing needs, so we thought Baltimore was better.”
Not surprisingly, Ciena’s early growth was driven largely by Sprint, which had one of the largest Internet trunk lines. At the time, Internet use was exploding and Sprint was desperate to increase the bandwidth. Normally, this was an expensive proposition, involving the dispatch of backhoes to dig through streets and countryside to install additional strands of fiber-optic cable, at the cost of about $100,000 per mile.
Ciena’s multiplexer could cut that cost to less than $15,000 per mile. Instead of installing more fiber, carriers could install Ciena's wavelength division multiplexer, which could send more signals down fiber already in place.
This wasn’t a new idea. Lucent had a multiplexer that could fit four signals in a single strand. But Huber designed one that could multiplex 16 signals, in effect making existing lines carry 16 times more data. It was the “pot of gold” the Sprint executive had seen when Larry Huang described the device to him.
“Nobody else approached that for a few years,” says David Chaffee, an Ellicott City publisher of fiber-optic reports for’ “the telecommunications industry. “Ciena had a window all on their own, a golden opportunity.”
“Basically,” recalls Dennis Bilter, Ciena’s director of marketing, “Sprint had said, ‘Build them as fast as you can, we’ll buy every one that you make.’ In 1996 and 1997, we couldn’t grow fast enough.”
Bilter, who started working for Ciena in January, 1996, experi enced the tremendous growth firsthand. By the time he joined, the company had already moved out of its first location, a Linthicum business park office, into a larger space in Hanover.
“The first day I started working, I was in this open area. It was this big empty concrete floor,” Bilter says. By the end of 1996, that space was filled with new employees.
Keeping that location, the company then leased space in Laurel. It wasn’t enough. When more office space in Linthicum opened up due to the shrinkage of defense contracting work, Ciena commandeered four large buildings in Linthicum, and now has plans to occupy a fifth this year.
In 1996, the company generated $55 million in revenue; in 1997 the year of the company’s initial public stock offering the revenue shot to $400 million. And, despite recent slumps due to the recession-inspired slowdown in the marketplace, it has been growing since.
Ciena is becoming a quiet powerhouse for Maryland’s economy. It employs 2,000 of its 3,000-person workforce here. It has offices scattered across the globe, from Cupertino, California to Paris.
And yet, it's likely that the average person on the street has no idea Ciena is or what it does “I think it's because we're an infrastructure company,” Dennis Bilter says. “We're like the companies that built the railroad tracks. Everyone knows who the trains are run by, but they don't know who built the track. We're the guys behind the scenes building the networks.”
David Huber, however, didn't stick around to enjoy the success at Ciena. By early 1997, he had left the company he founded, taking with him a reported $350 million in Ciena stock. Though neither Huber nor Ciena discuss the split, industry insiders believe that, as the company grew, Huber became increasingly frustrated with its burgeoning bureaucracy. And management, in turn, felt that Huber himself was not giving them enough information about what he was busy with in the lab in the first place.
In any case, by June 1997 Huber had another company underway, this one called Corvis, which he located in nearby Columbia.
The technology at Corvis initially went a step beyond what Ciena offered, trying to implement the full range of Huber's vision. It is offering a line of products that telephone companies could use to build “all-optical” networks.
Even on today's fiber-optic networks, signals still must be converted into electrical form whenever they get too weak or need to be switched to their individual destinations. Once regenerated, or switched, they are then converted back into light beams by little lasers. Unbeknownst to long-distance callers, their conversations may go through dozens of these conversion points, each requiring an expensive equipment.
This is the equipment Corvis aims to replace. By making light do tricks previously engineers could only make electricity do, Huber has come up with all-optical devices that the Corvis sales staff says can cuts network costs by 90 percent.
Corvis, even more than Ciena, is betting on the forward-thinking notion that the wires between your telephone and the phone of your mother in California eventually will be laser-powered from end to end. “Electronics won't be successful in providing the underpinnings of the information age. It really has to be optical,” Huber told Business Week.
Thus far, Corvis has enjoyed a similar, if not quite as astounding, success as Huber's previous venture. The company employs roughly 1,600 people, and has signed multi-million contracts to deliver all-optical wares to smaller telecommunication companies like William Communication, Qwest, and Broadwing Communications.
In the field of optical communications, Corvis has made a name for itself as one of the brashest upstarts, and Huber himself, for the one-two punch of Ciena and then Corvis, has gained a reputation of being a visionary, a Steve Jobs of the optical world. Light Reading, an online trade journal for the optics industry,• drew a somewhat different comparison when it noted Huber’s increasingly reclusive and secretive behavior in August 2000: “Huber is becoming the Howard Hughes of the optical networking scene brilliant, eccentric, mysterious, and rich as all get out.
Nevertheless, says journalist David Chaffee, “He’s incredibly imaginative. He understands the various nuances of the technology, the trends that drive the technology.”
One party complaining that Huber may be a little too visionary is Ciena itself. In July 1999, the company launched a lawsuit against Corvis, claiming the company had infringed on four of Ciena’s patents relating to optical channel selectors.
Was it just bad timing that Ciena filed suit just prior to Corvis launching its initial public offering? The Corvis lawyers didn’t think so. In fact, the company filed a counterclaim that Ciena deliberately filed in the month of Corvis’ IPO, when the company could not make any public statements in accordance with U.S. Securities Exchange Commission regulations.
As one industry observer puts it, “There’s no love lost between those two.”
The trial is scheduled to start in April.
While Corvis and Ciena busy themselves conquering markets and feuding with each other, their very presence has sparked a trend that may ultimately he just as important to the area. Other fiber-optic companies with vaguely futuristic sounding names like Codeon and Optinel Systems are quickly popping up around them.
In fact, the Baltimore region is showing all the signs of becoming a major hub for the fiber-optics industry, and already ranks in status alongside other hotspots as Richardson, Texas, Silicon Valley and the Route 138 corridor in Boston.
Richard Story, executive director of Howard County’s office of economic development, estimates that there are 29 telecommunications optics companies in the state, most a short drive from BWI. He cites a state statistic that these companies employ over 5,000 people here.
What we have here, Story says, is an honest-to-goodness “cluster,” economist-speak for a group of industries agglomerating in a particular geographic area, creating a momentum of good fortune. Regions usually lust after clusters, dreaming of a Silicon Valley-like prosperity. Baltimore--and the state--have tried to jump start clusters in bio-tech, information technology, and even tourism. But now photons seem to be the hot ticket.
“Much of that has to do with Ciena and Corvis,” Chaffee, the industry analyst, says. “Vendors flock here to try to sell them subsystems and components.”
Bookham Technology, component builders based near London, chose Columbia as a location to set up a 15,000-square-foot shop, to get cozier with Corvis and Ciena. Last August, Ciena started buying modulators from the Columbia-based Codeon to embed in its own products. Also, employees who worked at Ciena or Corvis have caught the entrepreneurial fever and set out on their own. Engineer Henry Yaffe left Ciena to form his own Yafo Networks, housed in Hanover.
Still other companies have been here for decades, undertaking photonics research, often under wraps, for the government’s military and intelligence agencies. When the telecommunications market heated up, they switched gears. Although Columbia’s Essex Corp. made its payroll traditionally through government work, and many of its employees came from the National Security Agency, what they were working on lent itself easily to commercial applications. The company has developed a way to coat glass that will allow signals to pass through it in even narrower bands than those Ciena offers.
Many of these companies operate under a similar set-up as did Huber and Nettles. A lab researcher, usually quiet but very smart and creative, glimpses something in that distant horizon where science and technology converge, something that can make a lot of money. So the lab rat pairs or gets paired with a business-savvy executive, usually gregarious and equally smart, who will knock on doors, sweet-talk investors, schmooze with potential clients and, in general, get an actual business up and running.
At Essex, for instance, the president is Leonard Moodispaw, a tall man with a hearty laugh, but it’s the Chief Technical Officer, Terry Turpin, who was identified as an “optical genius” by George Gilder, the industry expert at Forbes magazine.
Operating in a similar fashion is Brimrose, which is managed by Ronald Rosemeier, who founded the company in the early ‘80s to undertake government research in an arcane field known as acousto-optics, where the reflective properties of light can be used to measure things in great detail. While Rosemeier stepped out of the lab a long time ago to run the front office, his protégé, C.C. Wang, mans the workbench, refining acousto-optics to measure the purity of fiber cable.
“I believe Wang will be one of those technologists who will make the textbooks,” Rosemeier boasts.
Wandering into local start-ups like Optinel or Quantum Photonics, it’s hard to believe that the country is still in the throes of a recession. They’re both in Jessup, both funded by Optical Capital Group, a venture capital firm, and both founded by Huber and run by John Spirtos. These small offices bustle with the kind of excitement that came from dot-corns a couple of years ago. They seem blissfully unaware that their target customers the telecoms are suffering financial hangovers.
In fact, many telephone companies are experiencing what analysts call a fiber-glut. Companies like Qwest paid to lay mile after mile of fiber-optic cable across the country, anticipating a flood of use that has not yet occurred. The industry scuttlebutt these days is that only 2 to 4 percent of the fiber-optic cable underground is actually being used.
In other words, even as the economy recovers it might be awhile before companies belly up to the counter for expansion equipment.
To Spirtos, however, this is all part of the grand cycle. “The telecom industry is very cyclical. Even if you go back to the origins. of the telecom industry the early part of last century you see these curves. It’s very predictable,” he says.
Notwithstanding two rounds of recent layoffs affecting about 700 employees, Ciena is weathering the downturn. In February, CEO Gary Smith said the company would not do as well this year as it did in FY 2001, when it recorded $1 .6 billion and earned roughly $195 million in operating profit. To offset the sharp decline in the long-distance phone company market, Smith says Ciena will devote more attention to the emerging market in metropolitan networks and to markets in foreign countries.
Corvis, a younger company, is still more at the mercy of the economic elements. Last fall, many of the orders, including one placed by Qwest were canceled, causing the company to fall short of projections. In November it laid off 300 people roughly 15 percent of its work-force. To live through this period, the company is falling back on the estimated $200 million still on hand from its $ 1.3 billion initial public offering.
“The cash position is very strong. We have taken steps over the past year to make sure that our burn rate is well managed,” says Mark Dill, vice president of marketing at Corvis. “I hate to speculate on the long term but the goal is to get to the other side of this, and we have the resources to do that.”
And many of the smaller companies in the area, surprisingly, were unaffected by dot-corn mania, and are weathering the recession quite well.
“We’ll never see another period like that,” admits Terry Basehore, president of the Millersville-based Gould Fiber Optics, which has expanded from a base in government work and has been in the fiber-optics business since 1985. It has maintained profitability with a slow but steady growth. Basehore says Gould never bought into the unreasonable growth expectations that a number of their start up competitors did. The company now employs approximately 300 people between Millersville and New Hope, Pennsylvania.
For Brimrose's Rosemeier, the current buying lull actually gives him some breathing room. In 2000, Rosemeier started a new spin-off called Brimcom to market optical flatteners, filters that cut down the frequency of how often light signals need to be regenerated as they travel long distances. “When this bubble burst, it gave us a, breather because, to be quite honest, our technology wasn’t quite ready yet,” he says, “So as a result of the slow-down, we have time to make the device better.”
Interestingly, looking beyond the current lull, Howard County’s Dick Story expresses some concern about the possibility of the fiber-optic industry and its suppliers becoming too dominant in his county. He says Howard County draws its strength from a diversified workforce. The broad distribution of workers in many professions, he says, assures that the county won’t be at the mercy of the ebbs and flows of any one industry as was Youngstown, Ohio, for example, when the steel industry on which it was based suffered massive plant closings.
It's a concern other economic developers in the region probably wish they could share. They hope the ambitions of the Hubers and Nettles of the fiber-optics world are realized. And if they are, the greater Baltimore area may well become home to an entirely new industry, one that could approach Silicon Valley in prestige. But as the last few months have amply indicated, reaching that kind of status won’t be easy. lie Cienas and the Corvises around Baltimore will be competing against heavyweights like Lucent and trying to stay afloat in a $40 billion industry that has roiled in turmoil ever since Samuel Morse sent that first telegraph from Baltimore.
Sidebar: it’s the people, stupid
Finding genius researchers and surrounding them with business teams is what the Columbia-based venture capital investment firm Optical Capital Group is all about. Yet another enterprise founded by David Huber, this one is in charge of investing $200 million worth of venture capital funds into new optical technology companies.
OCG’s 60,000-square-foot facility off of Snowden River Drive in Columbia has high ceilings, plenty of open space, white walls, glass-enclosed conference rooms, track Lighting, and wide-screen televisions silently showing CNN. The place feels like the future.
The right half of the building is carved up in cubicles for house administrative staff to take care of the mundane day-to-day needs of a new company that may temporarily set up shop here. On the other side of the building are the optics playrooms, spacious labs fitted with oscilloscopes and other machinery for building prototypes of new equipment.
OCG is headed by John Spirtos, who was Huber’s lawyer in the beginning days of Corvis. Spirtos, with jet black hair, a confident smile, and a cool, rapid-fire delivery, outlines what the OCG review team looks for when poring through the 10 plus proposals they get each week.
In short, OCG looks for mousetraps that are not only slightly better but paradigm-breaking mousetraps that will be five times cheaper or 10 times better than what is out now, he says.
One such company with a promising technology is Optinel, based in Elkridge. Founded in 2000, Optinel’s cofounders Dr. Irl Duling and Dr. Sandeep Vohra had worked on projects for the Naval Research laboratory arid developed a Line of optical components that could help merging cable television companies consolidate their facilities. OCG gave them seed money and installed Ronald Spoehel as chief executive officer, his skills honed from time at, Lehman Brothers and Bank of America.
Although starting companies in this geographic region is not in OCG’s mission statement—over half of the companies it has invested in are outside the United States—if a start-up OCG chooses to incubate itself in OCG’s temporary facilities, it might then be tempted to stay in the area afterward.
“There is such a strong Labor force here and Howard County has been incredibly accommodating,” Spirtos says. The community colleges of Howard and Anne Arundel counties have introduced photonics programs, which may ensure a trained workforce can be had. Likewise, the University of Maryland Baltimore County’s recent push to become a more technologically oriented schools has resulted in a well of Ph.D. smarts to draw from.
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