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Ethernet Spurs Microwave Innovation

Riding a wave of demand for cellular backhaul, the licensed point-to-point microwave market is booming. With unit price declines of 10 percent to 15 percent per year, the market has grown continuously over the past four years and is set to be worth around $4 billion in 2007.

But now, with signs of a slowdown in mobile infrastructure and ongoing price pressure in emerging markets, the focus is on the development of multiservice and packet microwave systems to support emerging data applications, such as fiber extension services, enterprise networking, and backhaul for 3G and WiMax mobile broadband networks.

However, microwave equipment suppliers have widely differing plans for meeting this new requirement, finds the latest Unstrung Insider report, Ethernet Microwave: Backhaul & Beyond. For some, it’s enough to add an Ethernet interface to standard TDM systems; for others, it’s all about packet switching and a brave new world of adaptive modulation in combination with native Ethernet microwave.

What is clear is that, across the board, suppliers are developing common hardware platforms on which multiple access products can be based, including standard PDH, "Super PDH," Sonet/SDH, and Ethernet applications. Common platforms drive economies of scale, allowing suppliers to aggregate component purchasing, optimize R&D investment, and streamline manufacturing, delivery, and support. These scale benefits also feed through to the customer side in the form of better pricing and availability of equipment that can be upgraded in software on a pay-as-you-grow basis.

Perhaps the best examples to date of how common platforms have been implemented come from Harris Stratex Networks Inc. (Nasdaq: HSTX), with its Eclipse platform, NEC Corp. (Tokyo: 6701), with its Pasolink NEO product, and Nera Networks AS , with its Evolution product line. Notably, these suppliers have zero, or a relatively little, presence in the base station market (NEC doesn't sell GSM equipment).

Harris Stratex’s Eclipse product, with its nodal switching architecture and support for applications from standard PDH though to Gigabit Ethernet, is arguably the leading packet-oriented microwave system on the market. Similarly, NEC’s Pasolink NEO devices are designed to support a wide range of speeds and feeds and, used in combination with its CX2600 Series packet-switching products, looks set to build on its already remarkable success in microwave transmission.

For Nera Networks, necessity is the mother of invention. As a mid-sized supplier, it lacks the scale of its competitors and really had no option but to innovate in this way. The good news is that it started implementing its common platform strategy several years ago, and is now shipping more than 20 percent of its radios on its new Evolution hardware.

Market leader Ericsson AB (Nasdaq: ERIC) has also implemented this common-platform principle, although arguably to a lesser extent, in its Mini-Link E product series – which, in combination with its Traffic Node packet aggregation devices, has proven formidable in the backhaul market. And, challengers beware: Ericsson has a new Ethernet-oriented multiservice product line due in the first half of 2008.

Also on the cellular side, Nokia Networks has had success with its strategy of vertical integration between its microwave and base station products, even going so far as to connect the microwave indoor unit to the base station backplane to simplify operations and management (most suppliers use external cables). Following the merger with Siemens' communications division, which had a more horizontal approach, the new Nokia Networks plans to converge its product lines on a common next-generation platform.

Other vendors have come out fighting with technology-led strategies. One such company is Ceragon Networks Ltd. (Nasdaq: CRNT), which has one of the more convincing Ethernet stories and, remarkably for a company of its size (it doubled revenues to $108 million in 2006), has in-house ASIC and RFIC teams. Another example is Canadian startup DragonWave Inc. (AIM/Toronto: DWI; Nasdaq: DRWI), which just recently completed its IPO. Its strategy is to focus entirely on packet applications, using pseudowires where TDM transport is required. With its new, fully-outdoor Horizon Compact device, it also has a new take on the split-mount product architectures that prevail across the sector.

Staying with the packet radio theme, Alcatel-Lucent (NYSE: ALU) is alone among the major microwave vendors in outlining its intent to offer an Ethernet-only system, expected in the first half of 2008. The the best indication of its vision for the evolution of microwave systems is its adoption of terms, such as "service-aware transport," that are already used to describe its wireline packet networking products.

— Gabriel Brown, Chief Analyst, Unstrung Insider


The report, Ethernet Microwave: Backhaul & Beyond, is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,595. Individual reports are available for $900. To subscribe, please visit: www.unstrung.com/insider.

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