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Nortel's HDX: The Future Under Fire

Light Reading
OFC/NFOEC News Analysis
Light Reading

As the carrier spending environment chills to the bone, optical equipment makers look to use the downtime to prepare their next-generation strategies.

In the case of Nortel Networks Corp. (NYSE/Toronto: NT), this raises the question: What's up with the HDX optical switch, the company's marquee next-generation product?

Last week, news leaked out that Cisco Systems Inc. (Nasdaq: CSCO) was preparing an STS1 grooming switch; and, just last month, Lucent Technologies Inc. (NYSE: LU) announced plans for its LambdaUnite, an OEO grooming switch (see Cisco Preps Stealth Switch and Lucent's LambdaUnite Busts Out). Meanwhile, Nortel's OpteraConnect HDX platform, which has been in development for over two years now, still hasn't been officially launched.

There are two possible explanations for the delay. One: The product just isn't ready for prime time. Two: It's ready to sell, but the carriers don't like it and the company hasn't found the "launch" customer.

According to analysts covering the company, Nortel said last summer that the HDX would be in customer trials by the third quarter of 2001 and would be generally available in the first quarter of 2002.

So far, Nortel has announced that Genuity Inc. (Nasdaq: GENU) is one of the trial customers. But it hasn't announced that the product is generally available.

Carrie Kasten, a spokesperson for the company, claims that Nortel never specifically stated when the product would be generally available; instead, when the company referred to delivery dates, it was talking about customer or testing availability and not general commercial availability.

"I know, it's very confusing," she says.

Kasten says the product will be "showcased" at the Optical Fiber Communication Conference and Exhibit (OFC) set for Anaheim, Calif. the week of March 17.

"It is available now and in customer trials," Kasten asserts. "[Furthermore], we have been consistent with our expectations on delivery dates for the HDX for the past year, meeting the commercial availability projection of end of year 2001 as it was placed into two North American customer trials."

In any case, the HDX appears to have lost credibility with Wall Street, which grumbles that the company isn't handling the product launch particularly well. That's not good, because it is seen by many as the key to the company's future.

Some analysts say the delay might be the result of lackluster support from customers. UBS Warburg analysts Nikos Theodosopoulos and Michael Urlocker stated their concern over the product in a note they published late last year.

"Based on recent feedback from several major U.S. carriers, we believe that Nortel’s new HDX optical crossconnect may be poised for a weak reception by U.S. carriers," they wrote. "In our informal survey of eight major U.S. carriers, not one has indicated a strong interest in deploying or putting into trial the HDX."

Contacted this week, Theodosopoulos and Urlocker declined to add any comment on the HDX.

Market research analyst Mark Lutkowitz, vice president of optical networking research at Communications Industry Researchers Inc. (CIR), says he has heard similar grumblings: "Service providers I’ve talked to say there is a huge problem with the cost and size of the box. I don’t see any of them deploying it in any big way."

The UBS Warburg analysts listed four main problems with the HDX box. First, it may be too big. The OperaConnect HDX has four times the capacity of the CoreDirector, a hot-selling switch from Ciena Corp. (Nasdaq: CIEN). HDX supports 7.68 Tbit/s per bay with scaleability to 40 Tbit/s per system. This makes for a high startup cost and is currently viewed as overkill. The product itself is rather large and consumes more power than some service providers can justify.

But Nortel's biggest problem may be in committing to and selling a new architecture. For this reason, Nortel appears to be hedging its bets between a ring-based or mesh-based optical network, and that may have caused part of the delay on the HDX.

It all adds up to a puzzle for the company, which will likely try to spin the product's delay, if it happens there are no willing buyers of the current product. That could force Nortel to rework the product to fit customer needs.

"Without the HDX, I don’t know where Nortel will go optically," says CIR's Lutkowitz. "They’re already late to the market, so you have to figure it will be a problem for at least a few years."

— Marguerite Reardon, Senior Editor, Light Reading

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User Rank: Light Beer
12/4/2012 | 10:52:29 PM
re: Nortel's HDX: The Future Under Fire
Has anyone heard anything about Genuity's financial footing? (Sorry to be to lazy, er busy, to look it up) I have heard a rumor, and not that I need to be right here, that they are facing some severe financial problems.

User Rank: Light Beer
12/4/2012 | 10:52:29 PM
re: Nortel's HDX: The Future Under Fire
genuity trial was announced in august 2000 and it's still not live! maybe it's time for nortel to buy TELM at $100/share! then they'll actually win a *real* contract!
User Rank: Light Beer
12/4/2012 | 10:52:28 PM
re: Nortel's HDX: The Future Under Fire
I'm willing to bet that the product has not been announced as GA because it is not yet ready to be sold to Genuity or other trial customers, that is, it doesn't do what it's supposed to do. They've obviously missed their target GA date and Nortel is now fudging what it "really meant" by GA. "Oh, you thought GA meant General Availability. No silly, GA means only available to trial partners." So when it is ready for everyone to buy, what are they going to announce it as?
User Rank: Light Beer
12/4/2012 | 10:52:24 PM
re: Nortel's HDX: The Future Under Fire
This message board is a riot. Nortel must be really stupid and HDX is garbage... how else did they garner over 75% of the optical market? Please, Nortel is a large successful company and will surely make HDX a success. The VP of CIR should check his facts before blindly making comments that are false... talk about lack of credibility...
User Rank: Light Beer
12/4/2012 | 10:52:24 PM
re: Nortel's HDX: The Future Under Fire
well I think they've used CA (Customer Availability) and FCS (First Customer Ship) already. I'm sure there's more I havent seen
User Rank: Light Beer
12/4/2012 | 10:52:23 PM
re: Nortel's HDX: The Future Under Fire
75% of Optical Market? Where are you getting your facts, pal? What makes you think that they will be successful? Because they are Nortel? That sort of thinking got them in the mess that they are. (no slight against the rank and file who give their all. More of a slap against the clueless and not to mention dishonest management who lost a ton of shareholder wealth and cost a whole lot of people their jobs)

Read the posts on this and other related Nortel boards. Go read the ton of negative press coverage that this company has received. Is it a grand conspiracy? Is anyone who criticizes this company full of it? If so, you live in a strange world my friend. Between the CIR guy who talked to carriers, the UBS guys (who are pretty good IMO) who talked to a bunch of carriers, and a slew of other people out there who have spoken to carriers, all have said that they found no interest in the product.

You have no credibility.....you obviously work for Nortel or more likely their PR firm, RHK.

User Rank: Light Beer
12/4/2012 | 10:52:22 PM
re: Nortel's HDX: The Future Under Fire
Very good response optigirl.

I think Light Reading overall is doing
a good job.

I always come here to see if I will have a job
next week;)

LR anounced the demise of the last program I
was on way before "we knew".

Keep digging LR!
User Rank: Light Beer
12/4/2012 | 10:52:19 PM
re: Nortel's HDX: The Future Under Fire
Geez Louise there optigirlfriend!!! Why don't you just go off like a nut job on the guy just because he has a different opinion than you? If we all depended on message boards and analysts for our infomation we would all be much more well informed, huh? It sounds to me like you have an agenda of your own.Let me guess, long CIEN? Maybe in the 401k, eh?

I thought that zweisel sounded pretty reasonable. Look we all know there is not much spending going on now, especially for gear in the 40Tbit/s range, but Nortel would not have spent the money to bring this product to market if it did not work and there was no market for it.

Remember all the noise when they cancelled OPC? They obviously knew there was no market for a terabit router and were not going to spend the $ to bring it out. Now lo and behold LR tells us that the ILECs are more interested in Multiservice Switching and NT is there with the PP20k. So NT can't win by shelving a product whose market went away one day, or releasing one the next. When spending does pick up I think there may be a few takers for HDX.
These message boards are beginning to feel like Yahoo for chrissakes...
User Rank: Light Beer
12/4/2012 | 10:52:18 PM
re: Nortel's HDX: The Future Under Fire
Surely your username suggests the content of your posts, right?

Hmmm, HDX :

1. Late to market
2. Now, there is no market (it vacated the building Aug 2001)
3. The alledged "market opportunity" has filed Chapter 11 or is about to (6/10 customers on their powerpoint charts)
4. The "Key customer contributors" to the HDX design all work for startups now...think Photuris, Movaz etc.
5. The power consumption & footprint metrics were always wrong
6. What does it leverage? Please let us all know : "MPLS?" - no ; "ASTN?" - really? when? ; "OTN/G.709?" - not quite..remember Nortel fought Lucent on anything useable in that spec to protect SONET ; "Packet core?" - cancelled, too bad, so sad.

So, let me cut to the point, OptiGirl is right and if you wanna say otherwise then please back it up with *fact*.

Look to the history of the development cycle and even more so look where most of the orginal platform backers work now - it ain't at Nortel.

How do I know? Call it <<in_site>>.


On a side note, you know the really sad thing : the only thing out there today is CoreDirector for capacity, OC192c and STS-1 grooming. This market would be a lot better if Tellium or others could match with both transparency and STS-1 grooming. My thoughts on the CD? Lousy operations, poor syslog, bad fiber management etc. But the only game in town until at least HDX or another makes an appearance.

User Rank: Light Beer
12/4/2012 | 10:52:16 PM
re: Nortel's HDX: The Future Under Fire

OK so, maybe HDX is a bit late and maybe there are some trial going on, but as McFadden was quoted as saying, ramp in sales will depend on the customers. Maybe the product has great potential down the road when carriers need higher capacity.

Question 1) what do you think Nortel management should do to maximize sales of the HDX in the next two years?

Question 2) is there any evidence Norty management are doing this?

Question 3) (maybe a side issue, maybe not) How is Frank Dunn perceived and is he doing the right things to restore sales, motivate engineers?

Edmund Fitzgerald
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