Nortel Spins Past Ciena
By an incredible coincidence, Ciena announced its quarterly earnings today, after which it will be holding the usual analysts’ conference call. So Nortel's announcement will give them some fat to chew.
Nortel and RHK deny stage-managing an effort to micturate on Ciena’s parade, which promises to be particularly bullish. (It’ll be covered in a separate story, later today).
RHK maintains that it couldn’t issue its own release (see Euro Transport Market to Double) until late last night and that this dictated the timing of Nortel’s announcement today. This is in spite of the fact that RHK showed its European WDM market figures to its clients in a private conference more than a month ago.
It has to be said that Nortel has a reputation for playing little tricks like this, although some of its recent efforts at stealing the limelight and presenting its future in flattering terms have backfired a bit (see Nortel's Optical Halloween and Nortel Bashing Continues).
This one could also backfire, in that RHK’s figures don’t really tell the full story. If you peep under the covers, Nortel’s market position -- not just in Europe but in the rest of the world as well -- isn’t as strong as it makes out in today's press release.
Still, let’s start with the latest RHK figures. The ones that were in an early draft of Nortel’s press release (and selectively disappeared in the final one) indicate that the overall market size for European WDM equipment more than tripled in the past year, from $500 million in 1999 to $1.6 billion in 2000. Over this period, Nortel’s share soared from 23 to 37 percent while Ciena’s share plummeted from 35 to 17 percent. The important thing to realize is that these figures cover all types of WDM gear. Nortel sells cartloads of older generation, low channel-count WDM stuff which forms part of its 10-Gbit/s Sonet/SDH transmission equipment. And as its 10-Gbit/s Sonet/SDH systems have been selling like hot cakes, its European WDM figures look pretty spectacular.
However, Nortel is far from being a big player in the market for standalone, high channel-count DWDM (dense WDM) gear -- the stuff that Ciena specializes in, which can be used in conjunction with any vendor's Sonet/SDH transmission equipment.
RHK figures for high channel-count (40 wavelengths or more) DWDM gear indicate that Nortel had a mere 4 percent of the 1999 North American market, according to a December 5 report written by Kevin Slocum, an analyst at Wit Soundview (Nasdaq: WIT) This compared to Ciena’s 37 percent, making them the clear market leader. NEC Corp. (Nasdaq: NIPNY) had 30 percent, Lucent Technologies Inc. (NYSE: LU) 13 percent, and Alcatel SA (NYSE: ALA: Paris: CGEP:PA) 11 percent, according to Slocum's report.
It's important to bear in mind that these are 1999 figures. Equivalent figures for 2000 won’t be available for another few months, according to Stephane Teral, RHK’s director of European optical transport studies. That’s because RHK has to survey what’s actually been installed to do this breakdown, he says. RHK's year 2000 figures quoted by Nortel are based on orders rather than deliveries, and the orders aren’t specific enough to differentiate between low and high channel-count systems, Teral adds.
Even so, of course, Nortel is still the overall WDM market leader. A lot of Nortel customers haven’t needed high channel-count systems because Nortel was so fast delivering 10-Gbit/s Sonet/SDH, Teral points out. In contrast, Ciena could only offer 2.5-Gbit/s interfaces until recently, so its customers needed high channel-count DWDM boxes, he says. “Ciena doesn’t have the SDH platform that helps Nortel penetrate all the incumbent [carriers]," he adds.
Nortel’s advantage on this score, however, is being undermined by trends in the service provider market, according to Wit Soundview’s Slocum. The amount of IP traffic in carrier backbones is continuing to explode, and the need to run this over Sonet/SDH is disappearing fast, he contends.
This is mainly because everybody’s catching up with Nortel on 10-Gbit/s interfaces. As a result, carriers are planning to deploy routers with 10-Gbit/s interfaces that connect directly to DWDM boxes with 10-Gbit/s interfaces. They no longer need to use expensive Sonet/SDH gear to combine four 2.5-Gbit/s channels into a single 10-Gbit/s channel before shunting into a DWDM system, Slocum says. This has been recognized by RHK, which has downgraded its forecasts for Sonet shipments, he adds.
Nortel’s answer to this is to raise the stakes. It’s starting to bang the drum about 40-Gbit/s systems, in an effort to discourage carriers from buying standalone DWDM gear.
One reason for that could be that Nortel’s standalone DWDM gear isn’t up to snuff, according to Slocum. “When the Nortel ‘open’ DWDM platform is compared head to head with the Ciena solution, Ciena outperforms,” he writes in his report. “We do not believe the outperformance is something that can be addressed with a simple price reduction."
Slocum is also skeptical about Nortel’s chances of restoring its ability to sell combined Sonet/SDH and DWDM platforms by bumping everything up a notch and rolling out 40-Gbit/s systems. “While Nortel has plenty of incentive to get to 40-Gbit/s transmission in a Sonet box, there are major hurdles to be cleared before that technology can see meaningful deployments,” he says.
-- Peter Heywood, international editor, Light Reading http://www.lightreading.com