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Optical/IP

Optical Oracle: Core Incompetence?

Capital spending is down, prices for bandwidth are declining, and the telecom carriers are announcing historic losses. At the same time, 13 players have gathered in the core IP routing market for the final showdown. In the end, only two or three will be left standing.

That's the grim reality painted in the latest Optical Oracle, Light Reading’s paid research service.

This month’s edition of the Optical Oracle concludes that there isn’t enough room for all the players trying to grab market share from Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR), the two main players in the market. According to the report, Cisco, with its current 72 percent of the market, and Juniper, which has approximately the remaining 28 percent, are probably the only two companies that will still be making competitive core routers when the meltdown is over.

The report says the other companies proposing next-generation IP core routers don’t necessarily have bad products, but the equipment is costly, and there is a good chance that the ranks will be quickly thinned -- whether it be through shutdowns or acquisitions. The vendors covered in the report, in addition to Cisco and Juniper, are:

“Definitely more than half will disappear,” says Chris Bulkey, Optical Oracle's research analyst. “Cisco and Juniper might be the only ones to survive.”

Of course, this consolidation process has already begun. Only yesterday, Juniper announced that it will be acquiring Unisphere from its parent, Siemens AG (NYSE: SI; Frankfurt: SIE) (see Juniper Nabs Unisphere for $740M).

The main problem today is that the equipment vendors’ customers, the service providers, continue to struggle with huge debt loads, and many have already tumbled into bankruptcy (see Optical Oracle: More Carrier Cutbacks ). Another problem is that supply and demand of bandwidth are still out of balance, which has resulted in the prices for bandwidth plummeting. The main challenge is therefore to create equipment that can deliver more capacity at a lower price as well as create new revenue, the report says.

Traditionally, service providers have had to upgrade their networks with newer and better equipment every two or three years. In the current market, few want to keep up that pace of upgrades. That means cutting-edge startup equipment is not likely to be welcomed unless it introduces revolutionary cost savings. This is where major players like Cisco and Juniper have an advantage over the many startups trying to make it in this space.

Another thing that will separate the winners from the losers in this race is density, the report says, pointing out that just because a company claims to have the densest router doesn’t mean it actually does. The report, which examines the densities of the leading next-generation router products, concludes that they're not always all they're cracked up to be. In addition to density, the winning routers need to fill the provider’s requirements, fit into standard-sized racks, and meet weight and power consumption requirements. Having software stability is also a must, if the equipment vendor wants its core router to survive.

Feeding the core from the edge might actually be a safer bet than standing square in the center. Bulkey says that near-term, the edge router market is a better place to be. Building an edge router “require[s] less pure hardware muscle and more software finesse,” Bulkey writes in the report.

The report also provides analysis of public companies playing in the general IP market, including edge routing and switching players. These companies are:

The report expects about half of these companies, all public except for Unisphere, to disappear before the economy starts improving. Some will be spun back into their parent companies, Bulkey says, while others will disappear through merger and acquisition activities.

— Eugénie Larson, Reporter, Light Reading
http://www.lightreading.com The current Optical Oracle, "The Core IP Report," profiles 10 public companies and seven private companies, including detailed product and financial analysis for each. For more information or to subscribe, go to www.opticaloracle.com. Editor's Note: Light Reading is not affiliated with Oracle Corporation.

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kephill 12/4/2012 | 10:21:30 PM
re: Optical Oracle: Core Incompetence? Looks like NT made a smart decision when it abandoned this market and entered into a marketing relationship with Juniper. I remember others saying that relationship would not last but it has lasted.
edgecore 12/4/2012 | 10:21:29 PM
re: Optical Oracle: Core Incompetence? I don't buy that for a second!

Seems to me that the NT/JNPR relationship was in place long before OPC got cut.

i.e. Nortel was thinking that OPC was a great idea and investing R&D in it, even though the NT/JNPR Alliance was in place...

-EC

Steve Saunders 12/4/2012 | 10:21:28 PM
re: Optical Oracle: Core Incompetence? skeptic makes a good point.

My understanding is that the core IP market abandoned NT -- not the other way around.

Steve
skeptic 12/4/2012 | 10:21:28 PM
re: Optical Oracle: Core Incompetence? Looks like NT made a smart decision when it abandoned this market and entered into a marketing relationship with Juniper. I remember others saying that relationship would not last but it has lasted.
--------------
There is a difference between abandoning the
market and giving up the market because your
product in development is a total failure.
Calling it a decision implies nortel had a
choice. They didn't.

skeptic 12/4/2012 | 10:21:28 PM
re: Optical Oracle: Core Incompetence? The following people should not be on a list
of core router players:

- Marconi
Forget core routers, marconi itself will
be fortunate to survive.
- Procket
Procket has changed directions. They are
out of the core router space.
- Foundry
Foundry's products are not core router
products.

Personally, I would not put Lucent on a list
anymore, but I understand why someone else might.
I'm also unsure of CWNT's positioning these days
(is it really a core router).
Facts4GoodGuy 12/4/2012 | 10:21:24 PM
re: Optical Oracle: Core Incompetence? It is not even mentioned in the article. Is Maple dead?
ExNortel 12/4/2012 | 10:21:23 PM
re: Optical Oracle: Core Incompetence? Ya thunk it?

The Juniper/NT relationship is a joke, perhaps Lloyd can save it? Nah.

Other problem is the original NT folks that are left wouldn't know an IP opportunity if it jumped up and smacked them in the head with a 2x4.

"You wanna buy a voice switch with that there data thingamajigga. Oh, didn't we tell you? We're back in them there voice businesses, thats where the mooney is!"

OPC, heh, it was doomed from the start, and I was at the starting line to watch it morph from a great idea then develop into something (nothing?) after 700+ NON-DATA and NON-IP folks put there opinion and expertise into it, most of them senior level wanna be's thinking they knew how to play the game and understood the market.

ExNortel
ehwhatsupdoc 12/4/2012 | 10:21:19 PM
re: Optical Oracle: Core Incompetence? Is Procket really out of the core router space? Or is it just speculation?

I think the rumors of its core router effort's death is greatly exaggerated...

Tony1athome, care to comment? ;)
techdocs 12/4/2012 | 10:21:18 PM
re: Optical Oracle: Core Incompetence? NT has NO Relationship with JNPR anymore. In fact, their router efforts are the Joke of the industry. Lets Review Nortel's router efforts shall we?
First their own development which they can, then some bizarre deal with Avici which they then in turn unplug to do a different router with Bay -- versalar 15000, which they then unplug to do optera packet core, which they promote with fanfare at supercomm only to sink the effort with massive cuts a few weeks later. Oh yeah, and somewhere in there the 'partnership' with Juniper was also put in place, which hardly seems to have momentum. So is that 6 different failed routing efforts? Even a cat only has nine lives...guess we'll be seeing 3 more routing attempts then. Any guesses what is next? Resell the Cisco 12000?? Guess you can expect anything from company that has a 27.4B loss and lays off 1 of every 2 people.

Again - Nortel is headed Straight To Bankruptcy, its the worst run company in this sector and all numbers from them prove it.
melao 12/4/2012 | 10:21:12 PM
re: Optical Oracle: Core Incompetence? "I don't buy that for a second!

Seems to me that the NT/JNPR relationship was in place long before OPC got cut.

i.e. Nortel was thinking that OPC was a great idea and investing R&D in it, even though the NT/JNPR Alliance was in place..."

As i remember at that time there were rumors about NT selling its optical components division to Corning or JDSU (i don-¦t remember), and NT would probably buy Juniper on Stock.
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