How Ciena Won TyCom

A variety of integrated features in the CoreDirector led to a $150 million contract at TyCom

May 9, 2001

3 Min Read
How Ciena Won TyCom

Yesterday's announcement by Ciena Corp. (Nasdaq: CIEN) of a two-year, $150 million DWDM contract with TyCom Ltd. (NYSE: TCM; BSX: TCM) illustrates the growing need for integrated functions in long-haul dense wavelength-division multiplexing (DWDM) optical gear.

Specifically, analysts say Ciena won this contract because its products combine long-haul and ultra-long-haul transport features with the ability to groom small units of bandwidth. This allows Ciena to complete several pieces of an optical networking link by rolling up smaller pieces of bandwidth into a large pipe and transporting that bandwidth over long distances.

"It keeps happening time and again that Ciena wins against its competitors because of its integrated approach," says Raj Srikanth, analyst at Deutsche Banc Alex Brown LLC.

TyCom, which declines to name the other vendors it considered, will be using Ciena's CoreDirector switch and CoreStream transport platform in transatlantic and northern European buildouts of its TGN (TyCom Global Network). TyCom says the links will be terrestrial, leading industry sources to think Ciena's gear will probably aggregate and assign optical bandwidth before it arrives on TyCom's submarine network.

Ciena says CoreDirector can groom STS1 (51.84 Mbit/s) links in Sonet configurations over both long-haul and ultra-long-haul networks -- without an upgrade. It also grooms channels in SDH networks. The CoreStream transport platform requires an upgrade of amplifiers and forward error correction software in order to support ultra-long-haul networking (defined by Ciena as distances greater than 2,000 kilometers). Still, one box fits both long-haul and ultra-long-haul apps.

Analysts see this as a key advantage. "Ciena's CoreStream is capable of supporting both applications on a link-by-link basis, simplifying network design and management," write analysts Alkesh Shah, David A. Jackson, and Arif Mawji of Morgan Stanley Dean Witter & Co. in a research note today.

The note continues: "We believe the move towards integrated ultra long-haul solutions could be bad news for Corvis and Nortel (Qtera) which offer standalone ultra long-haul products. At the same time, we recognize that deployments to-date of integrated ultra long-haul solutions remain limited."

Limited or not, Morgan Stanley sees the TyCom win as contributing substantially -- up to an estimated 17 percent -- to Ciena's projected switching revenues this year.

Although analysts agree this contract will help Ciena meet its numbers, they are clear that it's no cause for unconditional faith in the vendor. For one thing, this contract is no guarantee of future success with TyCom. "Ciena's announcement covers a general agreement for purchase orders to be written in the future," says TyCom spokesman Peter Ferris. To qualify as a supplier for other portions of TyCom's network, including the coveted transpacific portion, TyCom says Ciena will have to compete again.

And Ciena's competitors aren't sitting idly on the sidelines. Some of them, such as Corvis Corp. (Nasdaq: CORV), already exceed the capacity offered by Ciena's products, even though they lack the integration just now. It is certainly conceivable that as features are added, Ciena's claim could be diluted at TyCom and wherever it's relied on an integration sell.

Corvis, for instance, is working on its grooming switch (see Corvis Offers Grooming Tips). So is Sycamore Networks Inc. (Nasdaq: SCMR). And Nortel Networks Corp. (NYSE/Toronto: NT), says the integration of its OPTera LH 1600 switch with its OPTera Connect HDX optical grooming switch will be in trials this summer. Further, Nortel says the HDX will offer 10- and 40-Gbit/s interfaces, making it a compelling deal for carriers in months to come.

- Mary Jander, Senior Editor, Light Reading

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