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Tellium Ups the Ante

Light Reading
News Analysis
Light Reading
9/5/2000

Tellium Inc. hit a milestone today when it announced it had shipped its 512-port Aurora Optical Switch to Extant Inc., which was recently bought by Dynegy Inc. (NYSE: DYN). While other vendors have promised products that scale to 512 ports and above, Tellium is the first to actually ship such a product for commercial deployment.

“This is significant, because it’s the biggest switch out there,” says Dana Cooperson, director of optical networks at RHK Inc.. "It’s a good sign for them that the product category is maturing."

In September 1999 Tellium signed a five-year contract worth as much as $250 million with Extant -- which operates a backbone that links together CLECs (competitive local exchange carriers) and enables them to offer services outside their territories -- to provide the Aurora series of optical switches. A smaller 32-port version of the Aurora switch was deployed in the Extant network starting in April (see Optical Switches Go Into Commercial Use).

At the time this was the first known deployment of optical switches in a live commercial network. The company planned to have the 512-port product shipped to Extant at the end of June, but component shortages delayed delivery.

“Demand is huge, and some of the larger companies are putting in double and triple orders to buy out a supply line,” says Harry Carr, chairman and CEO of Tellium. “We wanted to make sure we had enough hardware so as not to derail our research and developments teams. But we’re over the hump now.”

Since Tellium announced the 32-port switch, other vendors have rolled out deployments and have reported revenue from their switches, but none of them has shipped products with the port density of the new Tellium switch. In July, Sycamore Networks Inc. (Nasdaq: SCMR) announced a deal worth $420 million with 360networks Inc. (NASDAQ: TSIX) for its SN 16000 switches (see Sycamore Ships Its Optical Switch). Although Sycamore claims that the architecture can scale beyond 512 ports, it’s currently being shipped with only 64 ports. Ciena Corp. (NASDAQ:CIEN) has announced that 10 customers are currently beta testing its 256-port CoreDirector switch and three are booked for commercial deployment (see Ciena Scores Big In Q3).

These are not the only vendors with promised products. Brightlink Networks Inc., Cisco Systems Inc. (Nasdaq: CSCO), and Nortel Networks Corp. (NYSE/TSE: NT) all claim they will have highly scalable products.

Among startups developing all-optical switches, Calient Networks Inc., OMM, Inc., Onix Microsystems, Inc., Integrated Micromachines, Inc. and Xros, Inc. (acquired by Nortel) aim to make products with at least 1000 ports (see Calient Claims Breakthroughs On Optical Switches ,Startup Prepares Secret Switch and Switch Startup Raises MEMS Questions). But none of these vendors is shipping products yet.

“That’s the real issue,” says Carr. “Who has something that is real today and who just lists items on the spec sheet?”

Tellium’s competitors say the Aurora switch has a limited application. Because it only supports OC48 interfaces, it requires additional Sonet multiplexing equipment to drop traffic off at lower speeds, says a Ciena spokesperson. Ciena and Sycamore, which support interfaces down to OC1/STS-1 or 52 Mbit/s levels, can consolidate functionality without additional gear, he says.

But the announcement certainly didn't hurt Tellium's case on Wall Street, as rumors circulate about a possible upcoming IPO by year’s end.

"It’s no question this is a stepping stone on the road towards an IPO,” says Tim Savageaux, senior analyst with W.R. Hambrecht & Co. “But they still need to demonstrate that they can sell to customers with more recognizable names.”

“They’re definitely a major player in the next-generation switch market,” Savageaux says. “And in terms of scalability they are in the lead for sure.”

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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