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I might be able to shed some light on why edge director isnt selling. The short part of the answer is
that it is too far ahead of the market.
Metro distribution is going to be where the broadband and the long-haul reworking of the network
infrastructure meet. It will be a huge market when it matures. But, there are 2 kinds of companies
who will be customers; the old bell heads and the newer netro network startups.
The Bellheads have the cash to buy Edge Director but they will stick with Sonet until it is clear they
have wrung it of every possible bit of growth. They know Sonet and many of the decision makers
got there positions recommending Sonet over older Mux gear. They think they are years away
from having to make a metro decision and that by then, their will be newer/less expensive options
for them. And there will be.
The startups might be willing to take the gamble and go after metro distribution now, but they are
cash poor and every nickel they can get are being poured into the last mile solution. They only way
they would consider an expensive metro distribution solution would be if the vendor financed it.
So, in the interim, metro will take off slower than CIEN would have liked. That leaves them with
an expensive product that will be supplanted with a plethora of cheaper solutions over the next 2
years. So, sell it where you can, and build a cheaper alternative OR acquire someone with a
cheaper alternative. But hope that you sell enough to pay for the future maintenance costs or dont
sell any at all. In between is a danger zone.
Dont lock yourself into it as the product of the future when the future arrives. That means that
when the future arrives, you will be selling an obsolete overly expensive solution.
It sounds like they understand this and are not canceling the product but are reducing the
expectations they previously set for it.
I am somewhat dispointed; being in the industry. I want to see DWDM in metro now and in the
enterprise within another year or so. I like designing at the forward edge. But there are market
realities that have to be met. You cant sell something new and revolutionary until it is cheap enough
to displace the current solution and the market place is willing to accept it as an answer. It seems
that metro isnt there yet.<<
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If we accept the former post as representing the situation, we move now to the next point.
CISCO has lost out in the long haul optical networking business because they didnt get into the
trials during '97 and '98. But with metro moving slower than we would like, CISCO can now buy
their way to the top of the metro market. By vendor financing a plethora of metro startups, they
can establish a dominant position before the bellheads are ready to move. CIEN then becomes a
niche player in the long haul market ( a very profitable niche though).
This points out why CIEN wanted metro to take off early while they still had an advantage. CIEN
doesnt have the cash flow to do the vendor financing game so if that become the primary
consideration for growth in the metro area, CSCO buys their way to the top.
None of this affects my decision to own CIEN now or for the next 2-3 years. But it does affect
my eventual exit strategy. During the last 6 months, I had begun to think that CIEN might become
a rival to CSCO with a strong enough position to go it alone. If that could happen it is feasible to
make 5-10 times the current price.
If they become a niche player, then the upper bounds of expectation are reduced and I start
looking for 3-4 times the current price. But for the short term, it is still the play in the market.<<
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