Avanex gets "Passive" Aggressive
Here is the most recent research report from Morgan Stanley's Alkesh Shah on Avanex :
Avanex Gets Passive Aggressive
Avanex’s recently announced contract with Cogent
Communications (COGE, $2, Not Rated) highlights a new
trend in optical networking, we think. Cogent is a new
carrier building an optical network running IP services for
multi-tenant buildings in 13 major US markets. Cogent’s
network is designed around optical rings that link multi
tenant buildings with points of presence or aggregation
points.
To understand what’s new about Cogent’s architecture,
consider first the traditional way of building rings. A single
channel ring would be built using SONET add-drop
multiplexers from Lucent, (LU, $59.40, Strong Buy, Price
Target $85) Nortel (NT, $68.60, Outperform, Price Target
$75) Fujitsu (FUJI, $19, Not Rated), or Cerent (Cisco) For
a multi-channel ring, DWDM transport boxes would
multiply the number of channels round the ring, with the
add-drop multiplexers attached to the DWDM equipment at
each node on the ring. The most widespread configuration
would be Nortel DWDM equipment and Nortel add-drop
multiplexers.
Another way of achieving the same result would be to use
“next generation” metro DWDM boxes, for example from
Chromatis. These are similar to SONET add-drop
multiplexers, but they generate multiple wavelengths and
have powerful switches at their cores. A carrier would
build a multi-channel DWDM ring with a series of these
boxes, one at each node.
But now consider Cogent’s architecture. Cogent chose to
build “passive optical rings,” consisting of Avanex
PowerMux modules to handle the multiplication of channels
around the ring, and PowerExchanger modules to handle the
addition and dropping of wavelengths to/from the ring.
Then, another vendor’s boxes, in this case from Cerent, are
positioned downstream from the PowerExchangers. The
Avanex gear is configured for the desired number of
wavelengths and selection of the channels to add or drop,
and the Cerent boxes do the rest.
This new model (the “next next generation”?) has some
compelling advantages, we think. First, the architecture is
far more “upgradable.” PowerMuxes can be easily re-worked
to increase the number of channels on a ring, and
the channel spacing can be altered to allow for faster speeds
per channel. With a ring built from traditional DWDM or
next generation add-drops, the passive optics are embedded
in the systems, and an upgrade would require a complete
system overhaul. Second, the passive optical ring
architecture allows the carrier to attach any vendor’s
equipment to the ring. In Cogent’s case, Cisco (CSCO,
$62.81, Strong Buy, covered by George Kelly, Price Target
$75) and Chromatis boxes can be attached.
We think this architecture is particularly suitable for Cisco
(Cerent) add-drop multiplexers. We believe that Avanex’s
interleavers and optical add-drops have excellent
performance metrics, while the Cerent boxes are somewhat
demanding. Use of Avanex passive devices allows a carrier
to build multi-channel metro optical rings using single
channel Cerent boxes. So for carriers attracted by a Cisco
end-to-end package, Avanex offers some compelling
advantages. Generous vendor financing from Cisco may
offset the higher cost of the Avanex solution.
We expect this architecture, in which the passive optics are
de-coupled from the active equipment, to be deployed by
other carriers. In particular, we would not be surprised to
see Cisco becoming an increasingly important Avanex
OEM customer. |
