Lucent Technologies Inc. (NYSE: LU) announced today that Japan Telecom has signed a contract for its all optical switch, the WaveStar LambdaRouter (see Cisco, Juniper, Lock Down Internet Router Market ). Details regarding the deal have not been disclosed, but the press release characterizes this as a multimillion-dollar contract (see Lucent Sells Lambda Router in Japan).

Japan Telecom is the second announced customer for the LambdaRouter and the first in Asia. In January, the company announced Global Crossing Ltd. (NYSE: GX) was testing the LambdaRouter, and in May it announced that the provider would be its first official customer (see Lucent Lands LambdaRouter Deal). Last month, Lucent announced that France Telecom SA had begun testing the switch.

Wall Street didn’t seem too impressed with the announcement of the contract. Lucent’s stock closed at 6.30, down 0.24 (3.67%).

“It’s definitely a positive for Lucent to win some business with this product,” says Rick Schafer, an analyst with CIBC World Markets. “But I don’t I think it’s significant to the bottom line. In its current form its [Lambda Router] is only operating in limited applications.”

One reason the new contract hasn’t spurred too much excitement could be that the amount of the contract is likely to be quite small. Considering that each LambdaRouter costs approximately a million dollars, a multimillion-dollar contract may only amount to a few boxes.

Second, it isn’t clear how Japan Telecom will actually use the LambdaRouter. According to some reports, Global Crossing is only using it for protection switching. In other words, the optical switch is not sitting in the core of the network. Instead, it’s been deployed at the intersection of the undersea network and the terrestrial network, where it’s being used to switch wavelengths from an active fiber to a spare fiber when a connection is broken.

“The LambdaRouter is still in the science-experiment stage,” says Gina Sockolow, an equities analyst with Buckingham Research Associates (BRA).

Sockolow and other analysts have criticized the LambdaRouter for being too large and too expensive. In its current form, the optical signal loses its intensity as it bounces from mirror to mirror within its core, and amplifiers are needed to keep the signal strong. This not only adds complexity to the switch, but it also adds cost, say experts.

Corvis Corp. (Nasdaq: CORV) is the only other company shipping an all-optical switch for revenue. Six of its CorWave OS switches are deployed in the Broadwing Communications Inc. (NYSE: BRW) network. But unlike the LambdaRouter, which switches individual wavelengths, the CorWave is much less granular and switches multiple wavelengths at once. As a result, it is not as bulky or as expensive as the LambdaRouter.

Others are also working on all-optical switches. Nortel Networks Corp. (NYSE/Toronto: NT) says that its OPTera Connect PX, a product developed from its Xros acquisition, has completed a customer trial that it first began back in December of last year at an unnamed carrier site (see Nortel 's All-Optical Switch is in Trials). Tellium Inc. (Nasdaq: TELM) is also still working on its all-optical switch, the Aurora Full Spectrum Switch.

But it could be a while before a real market emerges for all-optical switches. CIBC's Schafer says he doesn’t expect to see significant volume until at least 2003.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com