AT&T Boosts Ciena, Cisco
The announcement is important for a number of reasons. One, it shows that large carriers are still spending money on building next-generation optical networks. This provides some optimistic news in the face of the recent rash of carrier bankruptcies and capital spending cuts (see Global Crossing Falls Overboard, Carrier Pile-Up Claims McLeodUSA , and The Capex Cloud).
Secondly, because AT&T is one of the largest and most sophisticated carriers, the announcement sends strong signals about the types of products and architectures favored in these next-generation networks -- validating the products from Ciena and Cisco.
George Gawrys, AT&T Labs transport network planning director, says that the network is far from complete and that he expects deployments in more than 60 more cities in the next couple of years. The contracts themselves could surpass $100 million for each company over the next few years, according to Rick Schafer, an equities analyst with CIBC World Markets.
Ciena’s CoreDirector is being used for the optical switching portion of the network, says Gawrys. CoreDirector’s ability to groom down to STS1 (51.8 Mbit/s) was one important criterion used to select the product, he adds. Gawrys says the carrier had looked at gear from Ciena competitor Tellium Inc. (Nasdaq: TELM) but decided against further evaluation because it lacked STS1 grooming.
This piece of information seems to confirm a market trend, which is that grooming functionality has become a centerpiece in the marketing wars among optical switching companies (see Tutorial on Grooming Switches and Ciena and Tellium Go Feudin' ).
The Cisco ONS 15454 Sonet Multiservice Platform will be used to provide multiservice functions at the edge of the network such as aggregating lower-rate customer traffic up to high-speed OC48 (2.5 Gbit/s) or OC192 (10 Gbit/s) pipes. AT&T has already deployed more than 100 ONS 15454 systems, and Gawrys says the carrier plans to deploy many more over the next couple of years as the network is built out.
AT&T's choice of the Cisco Sonet product comes as a bit of a blow to Ciena, which has been trying to catch up to Cisco in the next-generation Sonet market. Ciena tried to break into the market with the K2 platform it acquired from Cyras last year (see Ciena To Buy Cyras for $2.6 Billion).
On the long-haul front, AT&T had already announced back in 2000 that NEC Corp. (Nasdaq: NIPNY) was providing the long-haul optical transport piece of the network (see AT&T to Deploy NEC DWDM System).
AT&T's optical network, which has been carrying live traffic since December 2001, already connects more than 40 cities across the United States. Both Ciena and Cisco started deploying their gear back in June 2001.
The financial community downplayed the announcement, saying the information had already been built into the market.
“Everyone knew this was going on for a while,” says Alex Henderson, an analyst with Salomon Smith Barney. “This isn’t really what I’d call a new contract. What’s most surprising is how much they’ve already shipped.”
Investors seem to have thought otherwise. This afternoon Ciena was up 0.84 (8.88%) to 10.30, and Cisco was up 0.76 (0.75%) to 17.51.
CIBC's Schafer says he isn’t changing his Hold rating on Ciena, which warned the Street last week that its earnings would be down this quarter (see More Cuts at Ciena). But Schafer thinks the news is giving the stocks a short-term boost, because the contract is finally out in the open. Glenn Jasper, Ciena’s director of public relations, says this is the largest deployment of CoreDirectos in an incumbent carrier's network to date. Cisco also says that this is one of its largest deployments of the ONS 15454 product. While it claims that it has also shipped to several other large inter-exchange carriers, this is the first large carrier contract it has announced publicly.
— Marguerite Reardon, Senior Editor, Light Reading