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Optical/IP

DLC Shakeout Looms

The digital loop carrier (DLC) market, by all outward appearances, should be going through some kind of a shakeout. But that shakeout has been long in coming.

Most industry pundits put DLCs into three generations. There are the old channel banks used to extend local loops (like the Lucent SLC series); the "next-generation" DLCs that were built for voice networks but later added some data capabilities (like Alcatel's Litespan 2000 series); and the new, new things -- the broadband DLCs that are just starting to emerge (see DLC Vendors in Next-Gen Name Game). Here's why everybody's waiting for the shakeout: The second and third generation DLCs -- the data-capable lot -- are where all the action is. There's a ton of companies that can replace or update those systems, but it's not clear the market will hold everyone.

For starters, there hasn't been much consolidation in the DLC market during the past year. Zhone Technologies bought NEC Corp.'s (Nasdaq: NIPNY) first-generation DLC business (eLuminant) in February. That move gave Zhone three generations of DLC in its arsenal. In April, Motorola completed its takeover of Next Level Communications and soon thereafter began slashing staff (see Headcount: Copy This).

Besides a lack of consolidation, there is an influx of startups and smaller companies that don’t appear to be hemorrhaging financially, a sign that the DLC market battle might go on a while.

The incumbent vendors in the space, of course, are taking issue with the upstarts in their once-cozy market. "It's amazing to me that people are still driving money into this space," according to Jim Sackman, chief technology officer at Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI).

The broadband DLC market (comprised of second and third generation systems), was a $676 million market worldwide in 2002, according to Infonetics Research Inc. In terms of revenues, Alcatel SA (NYSE: ALA; Paris: CGEP:PA) owned half the market, Lucent Technologies Inc. (NYSE: LU) held 20 percent, and AFC held about an 11 percent share.

This year, Infonetics predicts the DLC space it tracks will bring in $810 million in worldwide revenues. Assuming the top three market share leaders do nothing more than hold their ground, that leaves at least a dozen vendors slugging it out for the remaining roughly $240 million in revenues.

  • These players include: Even Adtran Inc. (Nasdaq: ADTN), which sells SLC 5 replacements, has some DLCs can be configured to work as DSLAMs.

    Not all of the vendors above battle over the same turf, though. Marconi, for instance, has an RBOC presence and remains a contender in fiber-to-the-curb applications (see Marconi Beefs Up Access Portfolio). Occam is focused on AFC's market (see SureWest Picks Occam for VoDSL ) as is Calix, which could enter a carrier network with anything from a transport box to a DSLAM (see Calix Couches Ethernet Story). UTStarcom sells its DLCs outside North America, and Catena is hoping that its line-card upgrades will get the attention of big carriers (see RBOC Whispers for Catena and UTStarcom Wins First Deal in Europe).

    The only thing for certain at this point is that this bustling space probably won't be an M&A banker's dream. "There's actually not a lot of value in buying the low-end players. They don't have the market share to make it worthwhile," says AFC's Sackman. "I think I can win the market cheaper just by selling harder."

    "I don't know that you'll see as much consolidation as you'll see people going out of business," adds Mark Cannata, Marconi's VP of access marketing and product line management.

    — Phil Harvey, Senior Editor, Light Reading

    By the way, to help more clearly define the different players in the DLC space, Light Reading is working through an equipment taxonomy (see Who Makes What: Equipment 2003). Your thoughts on the DLC section, page 12, would be appreciated.

  • hitekeng 12/4/2012 | 11:48:36 PM
    re: DLC Shakeout Looms LR,
    glad to see you have adopted my recommended acronyms for 3GDLCs,...

    http://www.lightreading.com/bo...

    Hitekeng
    palaeozoic 12/4/2012 | 11:48:34 PM
    re: DLC Shakeout Looms Marketing 101: Never use the word "generation" in the naming of any product or product category. Fully 15 years after the initial deployment of "next generation" DLCs they are still most commonly referred to as such. Gimme a break.

    Most of the companies on this list (especially the dominant incumbents) are hawking n-1 "generation" boxes patched up with duck tape and spit. Phil, you need to dig deeper.
    firstmile 12/4/2012 | 11:48:32 PM
    re: DLC Shakeout Looms 1st, 2nd, 3rd are just as bad...
    And while we're at it, let's also ban layer 4, layer 7, next wave, second wave, third wave, etc....
    The pre bubble stuff just aint working anymore ;-)
    ...first
    Peter Heywood 12/4/2012 | 11:48:32 PM
    re: DLC Shakeout Looms Isn't it the word "next" that's the problem? 1st, 2nd, 3rd gen leaves the way open for further gens.
    palaeozoic 12/4/2012 | 11:48:30 PM
    re: DLC Shakeout Looms True, "next" is a problem for obvious reasons. But "generation" implies that there is some scientific, widely agreed upon, and very significant definition of what constitutes a generational shift. This is simply not the case with DLCs. Adding fiber to the back of the box makes it next gen or 2nd gen? Cramming a few DSL ports into it makes it 3rd gen?
    Glass2Glass 12/4/2012 | 11:48:25 PM
    re: DLC Shakeout Looms I'm a little puzzled by two numbers found in the article:

    "The broadband DLC market (comprised of second and third generation systems), was a $676 million market worldwide in 2002"

    "AFC held about an 11 percent share"

    AFC happens to be a great choice for this analysis because it is essentially a DLC-only company, when I take an 11 percent market share of a $676 million market, I would imagine AFC's revenue to be around $75 million, but AFC's revenue for 2002 was $344 million instead.

    This would suggest to me that either the DLC market was $6,145 million, or that AFC's share of the market was 50%. More likely, the truth is somewhere in between.

    So, LR, what gives?
    DCITDave 12/4/2012 | 11:48:24 PM
    re: DLC Shakeout Looms G2G,

    You've missed a couple of points. (1) AFC sells everything from outside plant cabinets to optical ADMs. You can't count all their reveneus as DLC.

    (2) Infonetics was measuring just the bit of the DLC market that concerned broadband-enabled DLCs. So that's late 2nd gen and early 3rd gen stuff, not the entire arsenal.

    Beyond that, I'd have to get back with Infonetics to see why the numbers aren't a bit closer. I'll check after the holidays.

    Cheers,
    ph

    KillerApp 12/4/2012 | 11:48:22 PM
    re: DLC Shakeout Looms G2G, Phil Harvey -
    A couple of significant items missing are the services revenue and the interest earned. Both are likely to be significant.

    The services revenue includes revenue from maintenence and upgrades. With an installed base as large as AFC's that can be quite large.

    A cursory look at AFC's balance sheet shows a cash/short-term hoard in excess of a billion. Also AFC's known for managing this money very very effectively. Thus a large amount the interest is thrown off.

    Add these two items and you'll have plenty to exonerate Infonetics. And you don't need to wait till after the holidays.


    .................................................

    You've missed a couple of points. (1) AFC sells everything from outside plant cabinets to optical ADMs. You can't count all their reveneus as DLC.

    (2) Infonetics was measuring just the bit of the DLC market that concerned broadband-enabled DLCs. So that's late 2nd gen and early 3rd gen stuff, not the entire arsenal.

    Beyond that, I'd have to get back with Infonetics to see why the numbers aren't a bit closer. I'll check after the holidays.

    Cheers,
    ph

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