Network Hardware Resale (NHR), the company that recently started selling OEM-compatible optics, is catching up with the high end, having begun selling 40Gbit/s modules.

The company also tells Light Reading it's exceeding its projected $10 million in sales of NHR-branded optics for the year.

The move to 40Gbit/s is a further step in legitimizing the gray market for optical transceiver modules. Systems vendors, Cisco Systems Inc. in particular, provide the optical modules that go with their gear -- sometimes at a fabulous markup.

But the modules they provide are acquired from optical vendors; the only difference is a software tweak such as an ID number. That's gotten NHR, and other companies such as OSI, interested in selling the optical modules directly to customers at a lower price.

"That was really the realization. You get all these branded transceivers, and time after time, you see 'Agilent' or 'Finisar' or 'Oclaro' on them," says Mike Sheldon, NHR's CEO.

This has been going on for a while, but NHR took it a step further in October by putting its own brand name on the optics. They're still the same off-the-shelf modules, but the company is being more brazen about selling them, essentially.

Sheldon has never asked Cisco or the other OEMs what they think of NHR's optics business. "We frequently reach out with olive branches, to Cisco in particular, and we generally don't get conversations to happen," he says. "If they care at all, they're not happy about it, but they don't seem to care that much in general about us."

That could change. Direct optical sales have been an add-on business -- something NHR didn't emphasize -- and have largely been at the 1Gbit/s level. The recent push into 10Gbit/s, and now 40Gbit/s, suggest this business could start getting more competitive.

In fact, one module maker, Finisar Corp., is also getting into this market, selling transceivers directly to end customers that build their own switches, analyst James Kisner of Jefferies & Co. Inc. wrote in a report published Tuesday.

NHR has now taken things a step further by selling products from Menara Networks, the transceiver company that puts an optical transport network (OTN) and forward error correction (FEC) chip into its tunable 10Gbit/s DWDM transceiver module. That trick, announced in 2008, won Menara a Leading Lights award.

It represents the first time NHR is offering an optical module that differs from those sold by the OEMs.

The companies announced their partnership in March, but NHR didn't start selling Menara modules right away. The part that had really caught NHR's eye wasn't the OTN and FEC, but the fact that Menara's modules were tunable and pluggable. The problem is that tunable XFP modules for 10Gbit/s were becoming commonplace, and prices were dropping to about $3,000 or $4,000, compared with Menara's $6,000 to $8,000 Sheldon said.

— Craig Matsumoto, Managing Editor, Light Reading