The debate rages on about legacy systems like SONET vs DWDM.
This article is especially interesting in view of today's news about Ciena's acquisition of Cyras. Apparently, Ciena now believes they need tools to access the SONET space.
Debate Rages Over Legacy Systems
Dec. 19, 2000 (Fiber Optics News, Vol. 3, No. 49 via COMTEX) -- By Fred Donovan
Are "legacy" technologies holding back more-established fiber optics suppliers? Yes, says Ciena [CIEN]. No, say Nortel
Networks [NT] and Lucent Technologies [LU].
In releasing his company's strong fourth-quarter results, Ciena President Gary B. Smith bragged that Ciena was "well
positioned" to capitalize on demand for intelligent fiber optics networks because it has no legacy systems. He contrasted his
company's market position with that of Lucent and Nortel, which he termed "legacy suppliers."
Investor concern about demand for optical networking equipment and carrier spending are misplaced when it comes to Ciena,
Smith says. Ciena is "poised to capitalize on the market shift unencumbered by legacy systems," he adds.
Smith's rosy view seems to be supported by Ciena's fourth-quarter results. The Linthicum, Md.-based firm posted impressive
growth in revenues for the fourth quarter.
Nortel and Lucent, however, beg to differ. They dispute Smith's claim that they are legacy suppliers. Officials from both
companies told FON they supply cutting-edge technologies, such as DWDM. They dispute the charge that because they also
supply older SONET/SDH systems, somehow the marketplace will leave them behind.
"You can't split out next-generation systems from the older generation ones; they are used in combination," says Vivian Hudson,
Nortel vice president for optical networks. She says Nortel supplies both advanced DWDM and SONET/SDH systems; it's
around a 50/50 split in terms of sales.
Hudson says Nortel's OPTera long haul 1600 optical line system offers 10 Gbps of transport capacity, and the company is
working on the next-generation platform that will offer 6.4 TBS. Nortel has a 53 percent market share of the DWDM market,
according to a recent study by the market research firm Dell'Oro Group, she noted.
Lucent, too, is pushing ahead with next-generation fiber optics technology, says Frank Briamonte with Lucent's Optical
Networking Group. Lucent is increasing capacity with next-generation DWDM and SONET/SDH systems. He "strongly"
disagreed with Smith's remarks.
Briamonte says Lucent has a "significant lead" in the all-optical switching market with its WaveStar LambdaRouter. The
company is also working on 40 Gbps TDM product, expected to be deployed early next year. He agreed with Hudson that
companies need to be able to supply both next-generation and older generation systems because networks use both
technologies at the same time.
Deutsche Banc Alex. Brown analyst Raj Srikanth sides with Smith's view of the future fiber optics market. He told FON that
Ciena, along with Sycamore Networks [SCMR] and JDS Uniphase [JDSU], are the strongest companies in the fiber optics
space because they aren't weighed down by the older technologies.
Srikanth says Ciena is one of the "best placed" companies to supply next- generation optical networks. The company's
CoreDirector switching product is "going like gangbusters," he says. While the carrier market has been slowing down, those
carriers that survive will "have no choice but to deploy intelligent optical networks," he says. So demand should continue to rise
in that market.
The Deutsche Banc analyst says fiber optics suppliers like Nortel and Lucent have been "getting hammered" in the stock
market. "But you can't paint [next-generation suppliers] with the same brush," he cautioned.
The DWDM market appears to be picking up, despite the downturn in other areas of telecom. A recent study by market
research firm KMI predicts a 43 percent compound annual growth rate for DWDM system sales over the next five years. By
then, the market will reach $54 billion, according to its recent report, "Worldwide Markets for DWDM."
KMI is predicting this growth because of several trends: a maturing of the long haul segment of the DWDM equipment market;
a stiffening of competition that will lead to price pressures; and an expected jump in metro market sales. The study predicts
DWDM sales for the metro market will reach $9.6 billion, or 18 percent of the total market, by 2005.
According to KMI estimates, the DWDM market increased from $1.7 billion in 1997 to $4.2 billion last year and $8.9 billion
this year, or a compound annual growth rate of 73 percent over the past four years. The number of DWDM component
vendors and the number of carriers that have deployed DWDM systems have both doubled over this past year, KMI says.
Perhaps the ground where legacy and next-generation suppliers can meet and compete is at the "optical edge." According to a
recent study by Pioneer Consulting, the "optical edge" network market offers expanding opportunities for suppliers of
components integrating DWDM, SONET, ATM, and IP multiplexing.
In its "Optical Edge Networks: Market Opportunities for Integrated Optical Network Solutions in Metro Markets" report,
Pioneer projects the optical edge system market, which includes DWDM and SONET/SDH systems, will top $8.3 billion by
2004 in North America, up from $1.15 billion this year.
"The importance of this integration is directly related to the profound changes underway in both public and private networks
today, in which an inexorable migration from circuit switching to packet switching is taking place, and the prominence of data
traffic is requiring a complete rethinking and reengineering of networks," Pioneer observes.
"It is quite possible, therefore, that the optical edge market is only the beginning of an evolutionary 'delayering' of the network,
in which IP emerges as the dominant services layer, residing on top of a thin adaptation layer," it adds.
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