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Optical Communication

For the most part, fiber optics became widespread in the long-haul network. A long-haul network connects metropolitan areas around the world and involves the transmission of huge amounts of voice and data traffic. Actually, it was the long-haul networks that were initially beset by congestion problems. Of course, the cost of increasing the capacity of long-haul networks is costly. So, why not develop subsystems and modules that can enhance the existing networks?

Well, some smart companies have been doing this - and, as result, have been growing at breakneck speed. One of the players is Optical Communication.

The company plans to have its IPO this week. The lead underwriter is UBS Warburg and the price range is $10-$12 (the company intends to issue 10.5 million shares). The proposed ticker symbol is OCPI.

The product line is broad, including such things as optical transmitters, receivers, transceivers, and transponders (in all, there are more than 500 products). There is support for SONET, Gigabit Ethernet, Fast Ethernet, and ATM protocols.

The benefits are many. The products can transmit at high data rates over long distances (up to 80 km). In fact, the products operate at temperature ranges of -40 degrees Celsius to 85 degrees Celsius. There is also advanced data packaging. This means very low radiation of electromagnetic interference (EMI).

The customer base includes many impressive players: Ciena, Cisco, and Marconi. Although, there is a high degree of customer concentration. The top ten customers accounted for 80% of revenues in the past nine months (as of June 30). In fact, Cisco accounted for 36.6%.

There are some other problems. The company is getting near manufacturing capacity. There is also a pending lawsuit for the patent on a product that represents 28.7% of revenues.

Although, Optical Communication has been growing at an incredible pace. In the first six months of 2000, revenues were $69 million, which was a 196.1% increase from the same period a year ago. The profits were $16.7 million.

Optical Communication is a division of Furukawa, which is an optics supplier. The good news is that Furukawa does not plan to dump its holdings in the company, thus avoiding dilution.

The recent pressure on optics stocks will definitely impact this offering. The general malaise of the IPO market will be a problem, as well. Nonetheless, this IPO is likely to launch this week, and if anything, it could be at a reasonable price for future growth.