Marconi's SDH Blitz Highlights Strategy
The clear question is: Is this wise?
To answer that, let's start by looking at today's announcements. The first, and possibly the most interesting, is Marconi's statement about the ongoing development of a multi-layer switch (MLS) that Marconi says will be "launched next year."
Marconi says the MLS has both an optical and electrical core, combining transport and switching functions in one box. The unit, Marconi says, can switch wavelengths in the optical domain (saving transponder costs). It can also groom channels a la the CoreDirector switch from Ciena Corp. (Nasdaq: CIEN), except the MLS will work with SDH channels, not Sonet ones. Packing the two cores together also enables Marconi to provide wavelength regeneration, boosting one wavelength without having to boost all the others in the same fiber.
Sounds terrific, but Marconi's not alone in its claims. Corvis Corp. (Nasdaq: CORV) and Sycamore Networks Inc. (Nasdaq: SCMR) made similar dual-core switch announcements earlier this year, and Corvis says it's already got tests or trials in various stages at five carriers, including Broadwing Inc. (NYSE: BRW) and Qwest Communications International Inc. (NYSE: Q).
Granted, Corvis's focus appears to be on North American carriers using Sonet, which could give Marconi an edge in other parts of the world. But Marconi's clearly in a race with competitors and startups for what many seem convinced will be a return to long-haul demand in the not-to-distant future.
Which raises another question, namely: Is Marconi banking too heavily on long haul?
No, some say. "There are a number of proposals out there for long-haul and ultra-long-haul systems that integrate transport and switching," says Robert Rosenberg, president of Insight Research Corp. He says market growth, though, depends on the introduction and acceptance of services in the metro and access portions of the network that will boost the need for more capacity. Video and entertainment services fit that bill.
For its part, Marconi clearly hopes its SDH emphasis might give it a key differentiator when the market picks up. And that brings us to Marconi's second announcement, a slew of SDH gear that includes a bunch of add/drop multiplexers and crossconnects, dubbed the Series 4, that have next-generation support for SDH networks.
Features include support for generic framing procedure, virtual concatenation, and link capacity adjustment (see Next-Gen Sonet , page 3, for explanation of terms). Marconi claims to have all these features in the new gear now, which is a plus, experts say, bringing them into the next-gen Sonet -- er, SDH -- game.
"I think it's about time," says Michael Howard, principal analyst and founder of Infonetics Research Inc. He says the new gear's remote configuration and management capabilities bring Marconi out of the legacy category, where he says the company's gained its market share in Europe. Hopefully, Marconi can use the influence it already has to open doors for its new products, despite increasing competition.
So why is Marconi making so much out of SDH? That's easy, experts say. While Sonet dominates carrier networks in the U.S. and Canada, the rest of the world, including Europe, the Asia-Pacific region, and the Middle East and Africa deploy SDH. And Marconi's already got a foot solidly in the SDH door.
KMI Corp., for instance, forecasts that in 2002, sales of Sonet/SDH transmission equipment, including Sonet add/drop multiplexers and terminal gear, will be $11.25 billion. Of that, SDH gear represents roughly 60 percent, about $6.5 billion. Digital crossconnects with Sonet/SDH interfaces will garner about $3.17 billion in 2002, the firm says, of which about $970 million will be SDH gear.
Sources differ as to Marconi's share of the SDH market. In April 2002, Marconi, citing figures from RHK Inc. in a press release, claimed to be the market leader in Europe, with 25 percent of a $5 billion SDH market there.
According to KMI, however, the company trails Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Lucent Technologies Inc. (NYSE: LU), Siemens AG (NYSE: SI; Frankfurt: SIE), and others in worldwide SDH revenues.
Notably, Marconi's focus on SDH won't eliminate all its Sonet products. The company will still provide Sonet interfaces for the multiservice switches it makes in the U.S., such as the BXR-48000 featured in news earlier this week (see Marconi Gets a Boost). But going forward, its optical gear will be built to SDH network specs.
Marconi's strategic shift is mirrored by some internal changes. The company today confirmed that Dave Lewis, executive VP and general manager of the Optical Networks division, will be leaving at an unspecified future date. Marconi's decided to meld the Optical Networks division with its Broadband division. Another executive VP, Tricia Dooley, will take charge of the new consolidated group.
Will there be layoffs? "It's too soon to tell," says a Marconi spokesman.
— Mary Jander, Senior Editor, and Peter Heywood, Founding Editor, Light Reading