Analyst Day comments re: Ciena
-from Wall Street's most profitable partnership:
Investors left Ciena's analyst day with mixed feelings, we suspect. Those who wanted to hear a good deal of near-term news (e.g., progress with AT&T,April quarter information, a new RBOC contract) heard little along thoselines, although the company remains optimistic about meeting April quarter projections. Those who wanted to better understand Ciena and its technology, who wanted a clearer picture of Ciena's markets beyond North American long-haul dense wave division multiplexing, were well rewarded, in our view. Several important points emerged from the day.
First, Ciena's direction and product features are increasingly
complementary to such data networking companies as Cisco, Ascend and
others. While traditional telecom equipment companies have a strong
emphasis on SONET/SDH time division multiplexing standards, newer companies tend to focus on optimized solutions for data traffic, which may bypass SONET in some cases. We expect to hear much more about these ideas in the second half of this year. Fortunately, no one in this industry intends to create any religious battles, which are often detrimental in networkingmarkets. These newer vendors simply intend to give network service providers more options to reduce network complexity.
Second, Ciena is broadening its product line as well as its customer base. The short-haul, point to point, 24-channel Firefly is in pilot mode, and investors saw it being built yesterday. The Metro, which allows a local service provider to add bandwidth and services inexpensively, (using a 2-fiber physical ring, which can support logical topology, any protocol, any transmission speed on a per-node basis) will be shipping for test by the summer or early fall. The company is also in the process of evaluating designs for optical channel switches, which might be deliverable sometime in 1999, although they have not made any final decisions and did not
announce a product. The company indicated that its largest customers will need small optical channel switches or protection switches to cost-effectively ensure survivability of the optical networks within a year or two. Given all the bandwidth these customers are creating with Ciena's DWDM solution, the junction points in their backbone networks will be the next areas of congestion.
Third, the market is as dynamic as ever. In North America, Ciena thinks the near-term fiber exhaust issues will be resolved by the end of this year, and the focus will shift towards adding additional bandwidth for strategic competitive reasons, moving toward more optical network elements for cost-effectiveness and simplicity, and migrating toward local optical solutions such as short-haul point to point products and metropolitan area ring managed networks, where there is some congestion building today.
From a competitive standpoint, Ciena sees itself now called in for re-bids of projects that seemed to be previously awarded to others; we'll have to wait to see if these are simply tactics by the network service providers to get better prices from the original vendor or whether there are new business opportunities. Ciena's recent delivery of a 40-channel system that scales to 96 channels has surely caught the eye of a number of network service providers, including non-traditional customers such as cable companies, pipeline companies and utilities.
Research and development progress has been steady and impressive at Ciena. The gratings labs (7 now, up from 1 a year ago) feature new software that automates the manufacturing of the optical signal filters. In general, yields at the company continue to improve and cost reduction is key. The design and production cycles for Ciena's products are only about a year,now.
Finally, we continue to wait for a Regional Bell Operating Company award. We would not be surprised to see an award as early as this week. |
