The Fibre Optic Products Unit, within the Network Solutions Division, forms part of Agilent's Semiconductor Products Group, which also encompasses Wireless Semiconductors, Storage Networking, Imaging Electronics and Electronic Components divisions. The level of investment in the Group, Mr. Fawcett says, is significant, the fibre optic unit's recognised growth is very strong and his unit is a key part of Agilent's overall strategy. Revenue for Semiconductor Products, based on third quarter 2001 run rate, is approximately $1.7 billion. The combined run rate of Network Solutions and Storage Networking divisions is about $700 million.

Mr. Fawcett notes, "In fact we can develop different types of manufacturing and test techniques that none of our competitors have access to, so the synergy with the T&M part of Agilent is very high."

Agilent has design centres in San Jose, Ipswich, UK, and Turin, in Italy. Manufacturing of tranceiver products takes place at facilities in Singapore and Penang, Malaysia, in Southeast Asia. The company employs a strong direct sales force, which is responsible for the majority of sales, though distributors are also used. Some components, such as lasers and detectors, are sourced from Agilent itself, with the remainder being acquired from a handful of large suppliers. Agilent claims to ship in excess of two million transceivers per month.

The company offers the whole spectrum of tranceivers extending from 10 Mbit/s LED-based products through to 1 x 9 Fast Ethernet and SFF Gigabit products. As well, it continues to carry legacy products such as FDDI components.

Two recently introduced high-end devices are an OC?48 SFF LC, primarily targeted at line cards for metro switching applications, and an 850nm 12-channel VCSEL-based parallel optics module.

The Small Form Factor (SFF) product family will also soon encompass OC?3 and OC?12 modules. In addition, Agilent believes it is the first vendor providing SONET?compliance for SFF LC manufacture.

Mr. Fawcett stressed Agilent's focus on high-volume sectors. "We look at whether the market makes sense for us and at what added value we can bring. We work strategically with customers for two years or more to develop products. We do not need to chase five to ten million dollar product lines, but we choose high volume sectors where our scale can really impact the market."

"For example in the metro space we asked ourselves how we could bring in our competency for high volume, low cost products from the enterprise market."

Agilent, along with Agere Systems, launched the XENPAK 10 Gigabit Ethernet fibre optic transceiver multi-source agreement (MSA) in March 2001. XENPAK now represents fifteen vendors and one OEM. Agilent is confident that the product is technically a leader, will become an industry standard, and will also drive down the cost of serial 10 Gbit/s optics in the metro space.

A significant feature of Agilent's new module is its high density, which the company has identified as a key design parameter along with bandwidth and throughput. Agilent claims the module can run 12 channels at 2.7 Gbit/s giving just over 30 Gbit/s in half an inch of space for the transmitter and another half inch for the receiver package.

The VCSEL, an earlier development from Agilent, is integral to the product. VCSELs offer greater efficiency and speed, as well as cost advantages due to easier alignment and testing during manufacturing. Reliability data is proving that VCSEL technology is capable of at least ten years of service, a further requirement of this type of product.

Agilent's package is also compatible with existing pick and place equipment avoiding the need for additional capital investment in manufacturing.

In addition to terabit switching in the router market, parallel optics modules are used as a low-cost solution in OC?192 VSR links. The proprietary interconnect market, however, is the primary application, where distances of up to 300 meters are supported.

Multi-Source Agreements
Agilent has spearheaded an MSA on parallel optics with WL Gore and Zarlink Semiconductor. In February 2001, a 12-channel MSA was announced between the three vendors and in April, Agilent and Zarlink signed an MSA on 4-channel, 10 Gbit/s parallel fibre optic modules.

One of the reasons that Agilent has led the MSA is to avoid any problems from being perceived as the dominant parallel optics supplier. "Agilent has done a good job in proving to customers that we are a strategic partner who is there to provide technologies reliably over time, and we drive price and drive costs with our volume. Our strong relationships and track record with our customers would help to mitigate the potential 'sole source' negative."

In early August, Agilent also announced an agreement with Corning Cable Systems to jointly market and support parallel optics solutions.

Mr. Fawcett views Agilent's main competitor in parallel optics as Infineon. "They were first to market with a product, but it came up with significant problems in terms of performance."

Although the market for the copper solution that parallel optics hopes to replace is much smaller, Agilent is anticipating huge growth in this sector because fibre optic interconnects will allow mass proliferation as its customers advance their technology targets.

"As far as the parallel optics product is concerned we are already well up our ramp curve and could actually meet 100% of the market demand. Our customers have told us that we are hitting the mark in terms of the quality of our parts, but what we are left to manoeuvre with is the uncertainty in the general market."

FTTx is often considered to be the biggest potential market for transceivers. Mr. Fawcett however said, "this is not a significant part of our forecasting but neither do I think it is dead and buried." For Agilent, defining the right product at the right price is key to the market, and "Agilent is working very hard to understand that marketplace and the opportunities."

Agilent is expectant of shipping "several hundred thousand" units in the next six to eight months, and of generating "several billion dollars" of revenue in the next three to five years.

The cost in volume for the parallel optics module is currently in the $900 to $1200 range with an anticipated roll down to about $800 in 2002.

Not surprisingly, Mr. Fawcett describes current demand in the optics market as "exceptionally challenging" but he believes that an upswing is likely to occur, at the component level, by the middle of the second quarter next year. In the meantime, Agilent is shoring up internal operations, ensuring that the right products are available and that capacity is in line with expected customer demand. "Products are continuing to sell and new designs are being worked on feverishly", according to Mr. Fawcett.