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Optical Networking Market Stabilizing

In the late 1990s, investors funneled billions of dollars (through VC funds and IPOs) into companies developing technology for new optical networking systems to speed data transmission.

But when the economy soured, carriers slashed capital budgets and sector players faced a market clogged with advanced, but expensive, gear and no buyers. A slew of highly touted startups folded while larger players, including Corning, Nortel and Sycamore curtailed plans for hiring, plant expansions and product lines.

Now, after two dismal years, the optical networking market is showing signs of stablizing, according to a report from IT research firm IDC and recent guidance from industry bellwethers.

While 2003 won't be a breakout year, it will still be pivotal, Sterling Perrin, a senior research analyst at Framingham, Mass.-based IDC wrote in a new study.

"Absence of growth in optical in 2003 should not signal that this is a market at rest," Perrin said. "The events and milestones of 2003 will define the nature of the recovery to follow."

IDC's predictions for the market include: a major long-haul dense wave division multiplexing vendor will exit the market; tunable lasers will become "real"; and metro ethernet will begin challenging passive optical networks.

The report also predicts that networking giant Cisco Systems will make a "major optical acquisition" in 2003.

Perrin did not identify potential takeover targets and was not immediately available for comment.

Meanwhile, earnings and future guidance from others in the field seem to confirm IDC's conclusions about the space.

This week, Ciena , of Linthicum, Md., said despite continued losses, it was making progress toward profitability.

And executives at Murray Hill, N.J.-based