IBM Buys Piece of a Missing Link : The computer giant’s acquisition of a stake in PCO signals its expansion into fiber optics and computer communications.

IBM has seen the light, and it looks like it’s coming from a fiber-optic cable.

Last week, IBM, the world’s largest computer maker with $54 billion in annual sales, disclosed that it bought a 25% stake in PCO, a tiny Chatsworth operation with a little more than $15 million in annual sales. The lure for IBM is that PCO makes equipment that is an important link between fiber-optic cables and equipment such as computers and telephone systems.

Fiber optics involves shooting light pulses through glass threads that are as thin as a human hair and as strong as a fishing line. In the past few years, long-distance telephone companies such as AT&T;, GTE and MCI have been wiring the nation with fiber-optic cables, creating a communications highway of vast potential somewhat analogous to replacing a congested freeway with a highway several miles wide.

Vastly more amounts of additional information can be sent through these fiber-optic cables than can be sent over conventional copper ones, meaning that one day companies should be able to effortlessly ship by cable huge amounts of computer data such as bank database records or an engineer’s computer-aided design of an airplane.

IBM already has two products that use fiber-optic technology to link computers, but the investment with PCO signals a bigger move into fiber optics and gives the computer giant a foothold in a burgeoning area of computer communications.

PCO, a 5-year-old subsidiary of Corning Glass Works, makes “opto-electronic” devices that act as communication links between, for example, a fiber-optic line and a computer. The devices are something like electronic interpreters.

They receive signals and pulses in one “language”--light pulses from a fiber-optic line or electronic signals from a computer or telephone--and “translate” the signals into the other language using a series of highly specialized chips so small that they resemble bits of glitter.

For PCO, the investment from IBM gives it the stability that comes from forming an alliance with a partner with cavernous pockets and top research facilities that will most likely be a huge customer.

“It also validates our technology, our manufacturing capability and our managers,” said Michael K. Barnoski, PCO’s president and chief executive.

So far, fiber optics is mainly being used to transmit long-distance telephone calls. But scientists envision the day when most of the nation’s homes and businesses will be wired with fiber-optic lines, allowing for such services as home shopping via interactive television, or for a company to fax documents to another continent as quickly as a photocopy machine can copy papers today.

PCO is also playing a role with other electronics firms in the development of U.S. technology for high-definition television. PCO and IBM are both among 17 U.S. electronics firms that announced Friday that they have agreed to form a partnership to finance research and development.

Officials at IBM, PCO and Corning would not disclose how much IBM invested in PCO, but it reportedly is about $10 million. One IBM official noted that the investment is not easy to figure because some of the costs involved are intangible, such as IBM’s commitment to assist in research. Corning also agreed to invest an additional, undisclosed amount in PCO. Besides IBM’s 25% stake, Corning owns 65% of PCO, with PCO’s founding executives largely owning the remaining 10%.

PCO was founded as PlessCor Optronics in 1984 by Barnoski, a former research executive with TRW and Hughes Research, along with Corning Glass and Plessey Co., a British firm. In 1986 Plessey sold its interest to Corning Glass, the Corning, N.Y.-based conglomerate with $2 billion a year in sales. Among PCO’s founders and current directors is Theodore H. Maiman of Santa Barbara, the man who built the first operating laser when he was at Hughes Aircraft Co.’s research laboratories in 1960.

PCO’s basic equipment can range in price from $300 to $500 and can fit in a person’s hand. The company also assembles packages of the devices that can run from $2,000 to $4,000.

The largest customers are computer companies and the rest are bought mostly by telephone and defense firms. Barnoski says the company is growing at a yearly rate of 250% to 300%.

Richard Dulude, group president at Corning Glass Works, calls PCO a “stunning success.” Delude downplays Corning’s role in building the company, giving most of the credit to Barnoski.

“It started with one guy and a handful of people,” Dulude said. “What we did was supply the money and a lot of help when necessary.”

Indeed, the company’s most pressing problem now is space. Since being founded in 1984, it has grown to nearly 200 employees. Its parking lot is jammed and equipment is packed together in rooms. The company is planning to expand into a new building in Chatsworth soon.

IBM has several challenges ahead if it wants to make its PCO investment pay off. For one thing, giant Japanese companies such as Fujitsu are already heavily involved in making similar devices, an annual market that ElectroniCast, a San Mateo market research firm, estimates at about $700 million worldwide.

In addition, computer makers such as IBM will have to keep designing more powerful computers to keep up with demands created by the fiber-optic technology. As fiber optics allows users to send more and more information faster, computer makers will have to provide more sophisticated equipment to receive and process the data.

Ulrich Weil, a Washington, D.C., financial consultant who follows IBM, said the investment is a way for IBM to make sure competitors don’t proceed faster in the area than it does.

“This is part of an insurance premium. They don’t want to be blind sided by someone coming up with a better mousetrap which they could have known about,” Weil said.

IBM, based in Armonk, N.Y., has invested in or bought companies to gain expertise in a new technology. IBM held a stake in Intel Corp., a Santa Clara semiconductor firm, from 1982 until 1987 when Intel bought back IBM’s holdings. And in 1984 IBM bought Rolm, a Silicon Valley telephone equipment company, to combine computer and telephone technologies. But last month IBM said it was selling Rolm, which is losing money, to Siemens AG of West Germany.

James C. McGroddy, assistant general manager for IBM Technology Products who serves as one of 10 directors of PCO, dismissed some industry speculation that IBM agreed to the deal because it was having difficulty developing its own optoelectronic products.

“Some people have interpreted it as a kind of a gap in the technology and that we filled the gap with these guys. It’s just a better way of doing something that we could have done anyway.”

He added that the deal was attractive to IBM because the three companies made a good fit--Corning is a major player in developing fiber-optic technologies, IBM is the world’s biggest computer maker and PCO has developed a strong reputation for its optoelectronic devices.

“One of us had the infielders, one had the outfielders and the other had the pitcher and catcher,” McGroddy said.