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Alcatel Tops Up Tropic

Light Reading
News Analysis
Light Reading
7/27/2004

The often discussed AlcatelTropic Networks link was finally publicized today as Alcatel announced it has invested an undisclosed amount in the reconfigurable add/drop multiplexer (ROADM) maker. In addition to the investment, Alcatel says it will market and distribute Tropic's gear globally (see Alcatel Invests in Tropic).

For Alcatel, the deal signals that the company is indeed serious about winning DWDM business in North America, where it faces competition from Fujitsu Network Communications Inc. (FNC), Lucent Technologies Inc. (NYSE: LU), and others. For Tropic, the deal gives the vendor a Big Brother to help support its sales approaches to SBC Communications Inc. (NYSE: SBC) and other large carriers.

In February 2003, Light Reading reported that a "strategic alliance with another vendor seems key to Tropic's survival." At that time, Alcatel was named as one of three vendors most likely to embrace Tropic. Later, after the demise of rival Photuris, Tropic's Alcatel connection became clearer (see Tropic Takes $20M, Looks to Partner, Photuris & SBC: The Inside Story).

Neither company will discuss the investment amount, nor will they talk about Alcatel's percentage of ownership of Tropic. Tropic CEO Kevin Rankin did confirm that the pairing was because of market demand, specifically "customer interest in North America."

For Tropic, which raised $87 million prior to Alcatel's financing, the investment is part of a larger Series D funding round, the details of which will be available tomorrow.

David Waterhouse, VP of product marketing for Alcatel's optical networking division, says the Tropic relationship doesn't mean that Alcatel is phasing out its 1696 Metro Span DWDM platform, as had been rumored. "They're not products we're going to discontinue," he says. "But with Tropic we will have the ability to introduce additional functionality."

Waterhouse says the 1696 has more than 55 customers worldwide and Tropic's technology will be added to those accounts. In other carrier networks, Alcatel will decide to either integrate or sell Tropic's entire product as a standalone.

Steve Pickett, Alcatel's senior VP and general manager of optical networking in North America, says Alcatel chose Tropic because its ready-to-deploy ROADM technology and its wavelength tracker, which analyzes wavelengths for problems and eliminates the need for some testing gear.

Pickett says the company will give more specific details about its metro product lines later this summer (see Tropic Touts Tracking Approach and Tropic Receives Wavelength Patent).

— Phil Harvey, News Editor, Light Reading


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Peter Heywood
Peter Heywood
12/5/2012 | 1:24:57 AM
re: Alcatel Tops Up Tropic
A couple of months ago, I had an interesting chat with a startup in this space about the pros and cons of deals like this -- Tropic partnering with Alcatel, Movaz partnering with Lucent and Motorola.

From the carrier point of view, the benefits of forcing startups to work with their existing big suppliers go beyond the obvious (a) less risk of the supplier disappearing, and (b) getting access to innovative technologies at the same time as getting the customer care that only big vendors with lots of staff can afford to provide.

The less obvious benefit is that you can cut costs considerably if you go out to bid on optical switches at the same time, and get the big vendor, with optical switches, and startup, with metro DWDM gear, to integrate their equipment, eliminating transponders.

The guy I was talking to says this ends up being very bad news for the startup, because the transponders come out of its gear. In general, vendors sell gear on the basis that they'll make a loss on the box and get their money back by charging a high margin on the transponders.

So from the startup point of view, partnering with big vendors gives them a much bigger market to target but it can reduce or even eliminate their margins.

You can probably take a guess at the startup I was talking to from these remarks. It's an outfit in this market that hasn't partnered with a big vendor, and thinks it can go it alone.

Peter
dodo
dodo
12/5/2012 | 1:24:55 AM
re: Alcatel Tops Up Tropic
Looking at this deal, Alcatel is covering all its bases.
For nearly 4 years, they have been trying to come up with a product that will have ROADM capabilities but have not been successful for a number of obvious reasons.
With the 3 horsemen (forget about Qwest) continuing to make noises that they have an RFP in the works (an ON/OFF annual charade since 2001)Alcatel would like to level its playing field in the US market, the major focal point for ROADM deployment if it does happen!

As far as the commercial and business aspect of this deal, let's hope that Tropic does not get "taken"

Just my 2 cents
douggreen
douggreen
12/5/2012 | 1:24:31 AM
re: Alcatel Tops Up Tropic
Peter,

The one who puts together the least expensive system for the customer wins. If the customer is willing to buy both systems (e.g. SONET and DWDM) from one vendor and can get it cheaper that way, that vendor wins.

For years Nortel dominated the OC-192 market with this strategy, in spite of the fact that their DWDM system wasn't all that hot. Nobody could touch them in price if they were using NORTEL OC-192 SONET combined with NORTE DWDM. I experienced this first hand when trying to compete with them.

Also, the "independent" vendor doesn't escape the margin pressure. If the customer is running cost models of Alcatel and Tropic versus Vendor X and Nortel/Lucent/Fujitsu, guess who is going to experience the pricing pressure? Your vendor-X is competing against transponderless, but has the cost of transponders in their system. Once again, who looses margin in that scenario?

On the other hand, there is more room for profits for both when cost is taken out of the overall system. I know that the Tropic was pushing Transponderless even before partnering, which tells me that they think they can make money that way.

Your independent vendor should be worrying about how they are going to compete. Margins aren't an issue if people buy someone elses gear.
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