NETWORK NEWS: CARRIERS - CISCO FALLS BEHIND IN THE RACE FOR OPTICAL SWITCHING.
80% match; Network News - United Kingdom ; 12-Apr-2000 12:00:00 am ; 807 words
Hardly a week has gone by recently without one of the industry's networking behemoths snapping up a company that specialises in optical technology. Surprisingly however, Cisco appears to be lagging behind the likes of Nortel in this scramble to buy up everything optical.
According to Maribel Lopez, senior analyst at Forrester Research, "Cisco appears to be falling behind its main competitors in the optical space. It had made one or two notable acquisitions last year, but they pale into comparison when compared to Nortel".
Acquisition fever
Nortel has recently shelled out $1.43bn to acquire CoreTek, a player in the VCSEL (vertical cavity surface-emitting laser) and MEMs (micro-electromechanical systems) optical networking markets. CoreTek's systems use tiny, movable mirrors to alter the wavelength of light emitted by semiconductor lasers and other optical components.
A week earlier Nortel had announced that it had agreed to buy California-based fibre optic switch company Xros for $2.5bn in shares.
Xros develops technology to build a mirror-based switch that can transfer a light beam from one fibre strand to another without having to convert the light into electrons, as is currently the standard. The technology can increase the speed and capacity of switches used in next-generation all-optical networks.
In January Nortel also acquired Qtera Corporation, a privately-held company that produces ultra-long-reach optical networking systems, for up to $3.25bn worth of Nortel Network's shares.
The reason for this acquisition spree is that optical technology represents the most important change in networking since the router was invented.
A truly optical photonic switching system promises to increase throughput performance immensely, and companies are working to develop a network that runs entirely in glass - unlike existing systems which convert existing light signals into electronic form in order to amplify or switch them.
Not up to speed
Currently, switching and traffic management is carried out using Sonet equipment known as 'add drop multiplexers' and 'digital cross connects'.
The problem with this method is that the traffic has to be converted from light waves to bits of digital information, for processing by the switches.
This digital information has to be subsequently converted back into optical traffic - akin to expecting an elephant to pass through an eye of a needle.
However, questions have been raised as to how ready optical switching technology is for the telecommunications carriers. Many switching systems can currently only switch wavelengths measured in the tens or at most the hundreds. For the technology to be truly carrier-grade, they have to be able to switch signals measured in the thousands.
Carey Gray of the Butler Group said: "At its core an optical switching system which relies on mirrors is a mechanical system. The perception is that they can be unreliable and the carriers will need a lot of convincing to utilise them."
However, Lopez said that despite these short-terms doubts, serious players such as Lucent and Nortel are very keen to increase their presence in this space. Lucent has been doing much of its optical development work in-house, he said, in comparison to Nortel, which has bought in the technology through acquisitions.
"Nortel wants to be a leader in the provision of optical networks. Current optical networks are not great at transmission, but with the purchases of Xros, CoreTek and Qtera, these technologies will make the optical network far more efficient," he said.
Proceeding with caution
Although not buying on the same scale as Nortel, Cisco has not been completely inactive in this area. Last year the company bought optical switching company Cerent for $7bn and Italian conglomerate Pirelli's wave division multiplexing business for $2.15bn. However, these were Cisco's first forays into the optical space. Analysts believe that Cisco still has a fair way to go to catch up with its rivals.
But has Cisco been caught napping or is there a definable logic in its comparative sloth in this area? According to Gray, "Cisco has grown by acquisition. It usually takes over startup companies that have technologies which it can integrate into its current product line."
This may explain why Cisco has concentrated on acquiring companies that it can more readily incorporate into its current product portfolio and be accretive to its earnings very swiftly. This could also explain why many end users accuse Cisco of not being very far-sighted.
Playing catch up
Gray estimated that optical switching technology will not be deployed widely in carrier networks for at least 10 years: "When this technology is ready to be deployed, Cisco will probably be prepared to pay top dollar for the right companies and it will probably have the resources to do so".
Its pockets will have to be deep to accomplish this. For example, Sycamore Networks, which has optical switching technology that is about to be deployed in Storm Telecommunications' IP backbone network in the UK, has soared in value - in almost dot com fashion - to $24bn. This is despite the fact that the company's third quarter revenues fell short of $20m (GBP 12m).
Cisco's current strategy in the optical market appears on the surface to be a little incoherent. The company's star could soon wane if it does not address this issue urgently. The demand for bandwidth will increase relentlessly and with its main rivals ahead in the optical arena, Cisco is in the uncomfortable and unusual position of having to play catch-up.
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