Optical Switch Market Stirs
Two top equipment vendors had some optical switch announcements this week, and, while neither was a barnburner, they show there's still a heartbeat in the sector. And the heartbeat may even get stronger as this year wears on.
On Monday, Lucent Technologies Inc. (NYSE: LU) announced that it will begin supplying its LambdaUnite MultiService Switch to Shandong Unicom, a subsidiary of China Unicom Ltd. (see Lucent Builds Out Shandong Unicom).
On Tuesday, Sycamore Networks Inc. (Nasdaq: SCMR) announced that its switch is the industry's first to incorporate both the Generalized Multiprotocol Label Switching (MPLS) protocol and the Optical Internetworking Forum (OIF)'s User-to-Network Interface (UNI) 1.0 requirement (see Sycamore Supports GMPLS, OIF).
Lucent won't give any details about its customer win. The peanut gallery views the win as interesting, though unlikely to give Ciena Corp.'s (Nasdaq: CIEN) CoreDirector the heebie-jeebies.
"Shandong is already a Lucent customer for CDMA products," writes David Gross, an analyst at Communications Industry Researchers Inc. (CIR). "This gives [Lucent] a sales advantage over the other switch makers, but this is still just a provincial contract. I wouldn't classify it as a 'big' win unless it included the entire Unicom region, or at least other large provinces such as Guangdong."
Gross notes that even if Lucent were to kick tail in this segment, that still wouldn't mean much, "because optical switch vendors are still losing contracts to broadband crossconnects, like the Tellabs 6500."
"LambdaUnite is pretty well targeted with the widest interface support," says David Dunphy, an analyst at Current Analysis. Dunphy says the switch's support for a standards-based ring protection scheme gave it an edge over competitors, until Sycamore recently addressed the same issue. He also notes the Deutsche Telekom AG (NYSE: DT) win Lucent talked up last year was significant as a vote of confidence for its LambdaUnite from a Tier 1 carrier (see Lucent Sells LambdaXtreme to DT).
Regarding its announcement, Sycamore says all of its technology developments are linked to specific requests from specific customers. The company says the SN 16000's combination of so many protocols and protection schemes gives carriers lots of flexibility to introduce new services without disrupting their existing operations.
Analysts, however, aren't so sure. "I'm not sure what customer said they need to run UNI 1.0 and GMPLS simultaneously, particularly when it is hard to find a service provider using either protocol," says CIR's Gross. He notes that the company's cash management is probably more important than adding new features at the moment.
Sycamore's SN 16000 counts NTT Group (NYSE: NTT), Vodafone Group plc (NYSE: VOD), and LDCom Networks as its customers. The company won't say whether the request for new features has come from a current or unannounced customer.
In the market for grooming switches (ones that switch individual Sonet channels, as opposed to whole wavelengths), Sycamore and Lucent both trail Ciena and face competition from others, including: Corvis Corp. (Nasdaq: CORV), Marconi plc (Nasdaq/London: MONI), Nortel Networks Corp. (NYSE/Toronto: NT), and Alcatel SA (NYSE: ALA; Paris: CGEP:PA).
Market researchers say that even though the optical switch market took a dive in 2002, it didn't get hit as hard as other equipment segments and may be poised for a bit of a comeback. Probe Research Inc. projects revenues in the area to begin steady growth in 2004, yielding a 143 percent total increase by 2007.
Dell'Oro Group says optical switch revenues for equipment makers were $270.2 million in 2002 and are projected to grow to $328.6 million this year.
Infonetics says Lucent placed third in the optical switch market in 2002 with a 14 percent share; Sycamore was seventh at 5 percent.
— Phil Harvey, Senior Editor, Light Reading