Courtesy cienisbelieven over on Yahoo....
Nortel sales estimates make no one happy — not even Nortel
March 8,2001
By Joe McGarvey
If you listen hard enough you can almost hear it through your monitor. Nearly the entire analyst community and a handful of hard-charging contenders in the optical-networking space are all shouting the same thing: The emperor has no clothes!
The purportedly buck-naked holder of the crown in this case is Nortel Networks, the overall leader in the optical-networking space for the past few quarters. That lead, however, say rivals and some pundits, is merely an illusion, a reflection of things past. It's the same dirty trick that the cosmos play on us when they inspire poets to wax romantically over the reflection of a distant star that could have very well burned out in a fiery blaze a million years ago. The star is gone, but it will take a million years for that event to reach the eyes of poets and plebeians alike here on earth.
You don't have to be Stephen Hawking to detect that a similar event is happing in the high end of the optical-networking space, say critics and rivals of Nortel. Yes, the Dell'Oro Group and Ryan Hankin Kent, the two leading trackers of the optical- networking industry, say that Nortel is still kicking some serious behind in the long-haul and metro DWDM space. But do the numbers lie?
Patrick Nettles, the chief executive of Ciena, says they do. If you take the long-haul DWDM market, for example, he says that the analyst numbers combine shipments of both Nortel's Optera Long Haul systems and an older system, which requires carriers to purchase Nortel's Sonet gear. While the Optera system should certainly be recognized in the same category as Ciena's open DWDM system, the closed system should not be, says Nettles.
The answer to this problem, of course, is to list the numbers from the two product lines separately. That's easier said then done, however. Nortel, citing a policy of not breaking out specifics for different product classes, won't say how many of the new Optera systems it is selling in comparison to the older gear.
What all of this means, of course, is that despite the highly anticipated and quoted numbers from top-notch analysis firms being readily available, a more accurate picture of what is happening at the high end of the transport market is dependent on what is essentially hearsay from the two main rivals. A spokeswoman from Nortel did say that shipments of the Optera gear are "substantial." She added that if you took away sales of the Sonet-dependent gear, Nortel would still have been the market leader, according to Dell'Oro's figures.
Over at Ciena, however, Nettles is unconvinced that Nortel is selling all that much Optera equipment. In the accounts in which the two are going head to head, he told me this week, Ciena is almost always running up against Nortel's closed system.
The truth about numbers, of course, is that you can pretty much get them to say anything you want if you emphasize the proper boundaries or insert qualifiers that favor one side or the other. Don Smith, the optical guru at Nortel, was a little bit miffed at published reports that Nortel's lead in the DWDM space was superficial because it was not selling equipment with high-enough channel counts. Citing the fact that the research made no distinction between systems with 2.5 gigabit channels and 10 gigabit channels, Smith said that the best way to measure density is to record the overall capacity of the system. In Smith's eyes, Nortel was being punished for its lead in 10 gigabit systems.
Here's what he means. Let's say that carrier A purchased a DWDM terminal with 10 channels at 2.5 gigabits per channel, for a total capacity of 25 gigabits. Carrier B on the other hand buys a system that offers 10 gigabit per second channels, but it only loads up three channels. So, even though carrier B has 3 channels of capacity to the 10 channels operated by carrier A, the former is out-bandwidthing the latter 30 gigabits to 25 gigabits.
Understandably, it might make things a little easier if analysts begin to also include total capacity scores in their numbers.
I'm not saying that the analysts are doing a bad job. On the contrary, they are doing an impossible job admirably well. When the companies they are evaluating have so much on the line, depending on how the numbers are spun, you know that someone is going to be unhappy with the way figures are crunched and presented.
I've always felt a pinch of empathy for Alcatel. Perhaps it's the Jerry Lewis thing or the "one too many rude waiters" factor, but the French giant always seems to get shortchanged when it comes to reporting distance records and overall sales. For some reason, analysts don't like to include Alcatel's submarine business in their final figures, although RHK does a good job of tracking that market.
Like Nortel, Ciena and Nettles are also pushing for a new set of standards for measuring the optical-networking market. Nettles would like to see reporting done in a way that reflects the shift in the buying habits of carriers. He would like to see a separate breakout for open DWDM systems, optical crossconnects and next-generation devices for the metro market. Doing some of its own research, Ciena expects the industry to grow by 70 percent annually if those next-generation systems are counted separately.
All of this, of course, does little to help determine whether or not the emperor is dressed to the nines or about to be arrested for indecent exposure. Based on what I've seen, the truth is somewhere in between. I will offer Nortel this warning, however. If the company's Optera gear is not as successful as executives say and Nortel fails on its promise to counter Ciena's CoreDirector with a beefier optical switch of its own, it could start to get a little bit chilly north of the border.
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