Could one of China’s leading equipment vendors -- ZTE Corp. -- be developing a state-of-the-art, all-optical metro transport system?

That’s one interpretation that could be drawn from the announcement made yesterday by OMM Inc.: that it will supply MEMS (microelectromechanical) optical switching modules to ZTE (see OMM Supplies ZTE).

ZTE itself is being inscrutable -- it hasn’t returned Light Reading’s calls so far -- but here’s what we’ve gleaned. ZTE plans to use OMM's modules inside its UNITRANS ZXMP metro optical network products -- a new series of equipment that includes all-optical switches, add-drop multiplexers, and multiservice transmission platforms.

According to Conrad Burke, OMM's senior VP of product marketing, the optical switching module is deployed on the line card, with a maximum of eight to ten line cards per rack.

As the UNITRANS product family is primarily a DWDM optical transmission system, it sounds as though ZTE is integrating all-optical switching and optical transmission capabilities inside the same gear.

If so, this suggests that ZTE might be doing some of the same things as Siemens AG (NYSE: SI; Frankfurt: SIE), Movaz Networks Inc., and Photuris Inc.. The logic is that transponders will represent a large and growing proportion of overall network costs as DWDM is deployed, and the only way to reduce the number of transponders is to integrate optical switching with DWDM systems (see Siemens Shifts Switch Strategy).

ZTE may have one big advantage over the likes of Siemens, Movaz, and Photuris, however. Unlike those western firms, ZTE's home market is in a growth phase. Chinese carriers plan to spend roughly $100 billion on telecom infrastructure over the next five years, according to a research note from CIBC World Markets. Historically, much of that business has gone to home-grown vendors.

ZTE is well-positioned to pick up that business. In terms of optical networking gear, it already holds a sizeable portion of the Chinese market, according to reports from RHK Inc. (see Home-Growns Rule Chinese Roost); of the local vendors, only Huawei Technologies Co. Ltd. holds a larger share. What's more, if ZTE's wireless networking business is taken into account, then it can actually claim to be China's largest telecom equipment manufacturer. The company had revenues of RMB 3.97 billion (US$479 million) in the first half of 2002.

Like Huawei, ZTE offers a comprehensive range of products, encompassing access, enterprise, and routing as well as optical transport. And like Huawei, it could be looking to expand beyond its home market (see Has Huawei Got Cisco's Number? ). One thing's for sure -- western vendors should take it seriously.

Neither OMM nor ZTE wished to reveal the size of the contract. The platform that OMM's switch is going into is a new one, so sales will likely have been small up to this point. But given ZTE's status in its home market and the projected growth of the market in China, there is a real possibility that this contract could turn out to be worth a decent number of shipments in 2003.

From OMM's point of view, the deal with ZTE provides a much-needed boost. Like all components players, OMM has been suffering in the downturn: In just the past few weeks, it has shaved another 36% from its headcount. The company now numbers 87 people -- well down from the 400 or so it employed at the start of 2001.

— Pauline Rigby, Senior Editor, Light Reading
www.lightreading.com