Optical networking has reached an important milestone: The technology is so ubiquitous that we don't even talk about it. It's like air or water, or like 3G coverage in the Everglades swamps. And that means it's high time to start talking.
Where do we start?
When you discuss data networks on a grand scale, there's no way around a few important names. You've got to at least gloss over what Cisco Systems
Some of Cisco's and Juniper's massive routers are optical, while others rely on good old copper cabling. But they can't build any optical systems without the proper components, now can they? If you believe that fiber optics is the wave of the future, you have to dig a level deeper than the router makers to find a pure-play investment in this sub-market.
Its rise to prominence results from a hyperambitious buyout strategy 10 years ago, when JDS spent an incredible $56 billion on two megadeals in a single year to consolidate the optical corner of the networking industry. Then the Internet bubble popped, and Canada's largest company became a largely forgotten small-cap.
Today, JDS is roaring back from the brink of the abyss; the company is back to its acquisitive roots and looking forward to the large-scale network upgrades expected from Verizon
JDS is not the only provider of optical subsystems. Oclaro
Then there's Opnext
I could go on, but the remaining competitors are nowhere near JDS or even Opnext in scale, operating history, or sheer market power. If you dig into the optical experts I've presented here, and you still can't find a suitable investment thesis, maybe this particular market isn't for you after all.
But if you see voice, data, and video networks growing manifold in the next decade, you're in good company. Easing an optical networking expert or two into your portfolio would give you a more exciting ride than the much larger and more mature all-around networking giants.
Excitement means risk, but it's also a sign of opportunity. Any or all of the stocks I mentioned could break out and hit the big time -- again, in some cases. In today's deal-happy IT sector, there could also be some market consolidation in the cards, with the attendant buyout premiums. In particular, I wouldn't be surprised to see Cisco go vertical yet again and buy out one of its component suppliers. If the networking giant can build server systems, I think anything goes, and there are cost-savings synergies to reap in a combination like that.
Do you have your eye on one of the optical networking specialists? Enlighten us all in the comments box below.
Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.