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Nortel's HDX: The Future Under Fire

Light Reading
OFC/NFOEC News Analysis
Light Reading
2/27/2002
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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
http://www.lightreading.com

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optical_leaders
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optical_leaders,
User Rank: Light Beer
12/4/2012 | 10:45:02 PM
re: Nortel's HDX: The Future Under Fire
On your last point lets not forget LambdaUnite - STS1, OC-192, OC-768 etc

I agree with everything you said on the HDX - that thing will never sell (in decent size quantities), nevermind in a market like todays.
Nuetrino
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Nuetrino,
User Rank: Light Beer
12/4/2012 | 10:45:20 PM
re: Nortel's HDX: The Future Under Fire
Man, you and optigirl give the analysts a lot of credit, too much in my opinion.

There isn't a single financial analyst covering the the telecom sector that can find his ass these days. Be careful...

One thing you cannot discount about NT and LU - relative to the vendor community, they still have TREMENDOUS credibility and strong relationships with the majority of the worlds significant carriers. That means they base their forecast and investement strategy upon PRIMARY market data - the quality of which is superior to just about any other source.

Every carrier I know always had time for LU and NT no matter what troubles they were having




dave77777
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dave77777,
User Rank: Light Beer
12/4/2012 | 10:45:55 PM
re: Nortel's HDX: The Future Under Fire
Looks like you were right.
butternoparsnips
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butternoparsnips,
User Rank: Light Beer
12/4/2012 | 10:48:06 PM
re: Nortel's HDX: The Future Under Fire
Whatever happened to BrightLink. They apparently had a scalable STS-1 grooming switch that would go head to head with the Ciena CoreDirector and I think I read that they had some customer trials underway as well?


Tellium's "grooming" switch was only at 2.5G. Not really competitive with Coredirector.

puddnhead_wilson
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puddnhead_wilson,
User Rank: Light Beer
12/4/2012 | 10:51:34 PM
re: Nortel's HDX: The Future Under Fire
>The only way they get into this market is through acquisition. Sycamore has a box, Tellium is available for $200M and there are other options as well.

interestingly the DB report (see my last msg) out today specifically looks at the the question of acquirees for these compaines, and NT doesn't make their short list for either. But who knows.
puddnhead_wilson
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puddnhead_wilson,
User Rank: Light Beer
12/4/2012 | 10:51:34 PM
re: Nortel's HDX: The Future Under Fire
zweisel wrote:

>I was not referring to simple annual sales numbers (such as 11% of sales according to RHK 2001 numbers), I was referring to bandwidth market share

you did NOT. This is EXACTLY what you wrote (post 5 of this thread):

>how else did they garner over 75% of the optical market?

Call me Mr. Literal, but when you are writing about "bandwidth share" (whatever the heck THAT means, as others have already pointed out) don't you SAY "bandwidth" and not "market?" Hey, making mistakes or getting something wrong is no big deal, even the smartest do it. But bluffing and pretending you didn't when someone calls you on it, it's THAT kind of stuff that can make you look stupid.

By the way, I have some more refined market share numbers now (forgive me zweisel if I now revert to using the meaning of the term that everyone else in the world uses), courtesy of DB Alex Brown optical report out today (good read -- so far, it's 32 pages. they in turn got it from Dell'Oro). In 4Q01 NT share of WORLDWIDE TERRESTRIAL OPTICAL networking market was 15% (I guessed too high at 20%). CIEN share is 5%. LU is also 15%, and ALA is the leader with 23%. Includes SONET, WDM, and switching.
Lopez
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Lopez,
User Rank: Light Beer
12/4/2012 | 10:51:36 PM
re: Nortel's HDX: The Future Under Fire
And you simply have no manners. I was not referring to simple annual sales numbers (such as 11% of sales according to RHK 2001 numbers), I was referring to bandwidth market share. It is common knowledge that 75% of all Internat traffic runs on Nortel's equipment.

Ok, I think that the average hop count on the internet is about 15, so how many pieces of equipment are in those 15 hops? There are probably 50 companies that can claim this, certainly all the big ones (CSCO, ALA, LU, NT, etc.).
Lopez
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Lopez,
User Rank: Light Beer
12/4/2012 | 10:51:37 PM
re: Nortel's HDX: The Future Under Fire
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.

There is no market now, but there might be by the timeframe that OPC would have been ready.

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.

Unless it has been eclipsed by another next gen box. Timing is everything, if HDX is hot sh*t, but comes out at a time that noone wants it, it doesn't matter. Remember Concord??
zweisel
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zweisel,
User Rank: Light Beer
12/4/2012 | 10:51:38 PM
re: Nortel's HDX: The Future Under Fire
optigirl wrote:

...75% of Optical Market? Where are you getting your facts, pal? You have no credibility..."

And you simply have no manners. I was not referring to simple annual sales numbers (such as 11% of sales according to RHK 2001 numbers), I was referring to bandwidth market share. It is common knowledge that 75% of all Internat traffic runs on Nortel's equipment.

You ignorant personal attack shows you character.

optigirl
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optigirl,
User Rank: Light Beer
12/4/2012 | 10:51:38 PM
re: Nortel's HDX: The Future Under Fire
Please, spare us the lame PR spin about Nortel carrying 75% of the Internet. Cisco makes the same claim as could a few other vendors. It means nothing.

There's a big difference in "selling what you can" and "having nothing to sell" which is Nortel's problem. Ciena might not have the best or optimal product but hey, give them a call and they can send one over, turn it up and leave you the keys. Nortel cannot. And, even if they did have the product, they would not find any takers.

The only way they get into this market is through acquisition. Sycamore has a box, Tellium is available for $200M and there are other options as well.

Give up the cheerleading, pal. Most of your fellow posters outside of other Nortel employees are not buying the sales pitch.

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