Metro DWDM Game Heats Up

Healthy competition is shaping up among Nortel Networks Corp. (NYSE/Toronto: NT), ONI Systems Inc. (Nasdaq: ONIS), and Ciena Corp. (Nasdaq: CIEN) in the metro DWDM market.

Earlier this week, Nortel announced upgrades to its Optera Metro 5200 DWDM platform. And new numbers from Dell'Oro Group show that Ciena is gaining on the top two players in the market: Nortel and ONI.

The latest version of the Optera Metro 5200, a product that’s been around for about two years, includes new hardware that will enable it to scale to 10 Gbit/s, which will allow it to support Sonet/SDH, OC192, STM64 and 10-gigabit Ethernet applications.

The addition of 10-Gbit/s functionality comes out of necessity, say some analysts. Competitors ONI and Ciena both have already announced 10 Gbit/s on their platforms.

"ONI has been shipping its 10-Gbit/s product for a couple of quarters at least,” says Rick Schafer, an analyst with CIBC World Markets. "That’s one of the differentiators between them. Nortel had to add 10 Gbit/s.”

This is a critical time in the metro DWDM market. For the first time in its short history, ONI has lost market share there. According to the Dell'Oro report published last week, ONI’s market share dropped to 26 percent in Q3 from 34 percent in Q2 (see Dell'Oro Plots Ups and Downs). Nortel kept its number one position with 37 percent of the market, the same as the previous quarter.

The biggest surprise is Ciena’s gain in market share. It was the only company to increase market share from Q2 to Q3. It jumped to 23 percent in Q3 from 18 percent in Q2. Ciena, which has a strong long-haul DWDM product, now seems to be making headway with its metro platform, MultiWave Metro. Even though the product has been around for a few years, competitors like Nortel have criticized it as a scaled-down version of the company’s long-haul product. But judging from these new numbers, carriers don’t seem to mind.

For the third quarter, the entire metro DWDM market declined about 25 percent, according to Dell'Oro. This is the first decline ever for this market. And the future doesn’t look much better. This year, the entire DWDM metro market is estimated to be $676 million, which includes actual numbers from the last three quarters and an estimate for the fourth quarter of 2001. In 2002, Dell'Oro expects the market to grow only about $12 million to $688 million.

Joe Padgett, director of marketing for optical metro for Nortel, says he isn’t worried about competition from Ciena or ONI. "They [ONI] are a novelty,” says Padgett. "They have one decent product out there today. A lot of our service providers have put them in the labs, but when you look at the numbers, we are still leading the market in deployments.”

Analysts and carriers see things a little differently. They applaud ONI for its technological prowess, but note that the product's real issue may be the price tag. During the past quarter, the cost game has played out in Nortel’s favor, particularly in Asia, where carriers are much more cost conscious than their North American counterparts.

"Where we’ve seen Nortel succeed is overseas,” says CIBC's Schafer. “They don’t have the same feature set as ONI, but sometimes the Asian carriers don’t need all that functionality."

Also hurting ONI is the fact that the company still doesn’t have its Osmine certification. This is important for companies selling to RBOCs. ONI officials placed new emphasis on the Osmine process in the last quarter's conference cakk, saying they would spend significant resources on it (see ONI Stock Takes a Hit). The company is also focusing on diversifying its customer. The company has depended largely on sales to competitive local exchange carriers (CLECs), which make up almost 50 percent of its total customer base.

Ciena could also run into trouble down the road as it tries to increase market share, because it hasn’t certified its metro product with Osmine either.

Nortel, on the other hand, announced last month that it has finished its Osmine certification, something the company says helped it land a deal as the primary provider of DWDM technology for SBC Communications Inc. (NYSE: SBC) under a multiyear metro optical contract.

— Marguerite Reardon, Senior Editor, Light Reading
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poster 12/4/2012 | 7:32:08 PM
re: Metro DWDM Game Heats Up stawmc: thanks for adding some intelligence to the analysis, which should have been included in the original article.

xnortel: I agree totally. nortel is just bitter becuase ONI is a bunch of ex-nortel guys who are now eating their lunch in the metro market.

these product announcements are not by any means next generation features. they are just the bare minimum required to keep them from getting laughed out of the sales meetings by engineering. the optera and the multiwave products are still both legacy long-haul boxes retro-fitted for the metro.

I wonder what the margin of error is for this report and how that would affect some of these numbers. as for the numbers in this report, I think they are misleading based on the current economic climate and the sept attacks. when things come back, the metro numbers will be the first to reverse - and will do so sharply. as soon as the market returns, ONI will runaway with it. they do need to diversify their customer base a little, which they realize, and get through OSMINE. once that happens, and it will in time, game over.

I don't work for ONI. gobble gobble.

h 12/4/2012 | 7:32:08 PM
re: Metro DWDM Game Heats Up
they have this "refurbished" product can EON...
"enhanced optical networking", which is a line
system...for some it maybe known as the 40/80G product line, which is now branded and sold as a totally new metro solution...
optical_leaders 12/4/2012 | 7:32:08 PM
re: Metro DWDM Game Heats Up Not if it is going to come back from the dead - was killed in product rationalisation.

"God" boxes have no place in a substantial portion of todays metro market and this will continue for people who try to have a "one stop shop".
Belzebutt 12/4/2012 | 7:32:08 PM
re: Metro DWDM Game Heats Up the optera and the multiwave products are still both legacy long-haul boxes retro-fitted for the metro.

You really have no clue. I don't know about the multiwave but your statement about the OPTera Metro 5200 is completely incorrect.
spont 12/4/2012 | 7:32:01 PM
re: Metro DWDM Game Heats Up I think I totally agree with Mr. Belzebutt. OPTera 5200 is definitely not a retro-fitted long-haul box.
Or the original poster simply has no clue, or he has his own agenda.
edgecore 12/4/2012 | 7:32:00 PM
re: Metro DWDM Game Heats Up I don't work for NT, so correct me if I am wrong, but I recollect that:

Optera Metro 5200 came from the Cambrian acquisition, which also delivered Don Smith to Nortel.

Optera LH stuff is the evolution of the in house OC48 and OC192 products

Optera ULH Stuff (i.e. 4000) is the Qtera product

Optera Connection Managers are mostly in house stuff, except for the PX which is the X Ros acquisition.

dodo 12/4/2012 | 7:32:00 PM
re: Metro DWDM Game Heats Up Right on the money ( or the loonie)
davbert 12/4/2012 | 7:32:00 PM
re: Metro DWDM Game Heats Up edgecore has it bang-on!

Another x-nortel

PS - I think it's stupid for Joe to call the Online a novelty - the market has deemed it a serious product.
whose 12/4/2012 | 7:31:59 PM
re: Metro DWDM Game Heats Up does anyone have the latest on the Nortel lawsuit against ONI for pilfering its technology?
poster 12/4/2012 | 7:31:56 PM
re: Metro DWDM Game Heats Up let me clarify: yes optera did come from Cambrian acquisition. multiwave metro mostly retro-fitted old CIENA long-haul box. in both cases, first generation metro DWDM equipment, which can't compete technically/performance with the online. the only way they are able to compete is by price.

moral of the story: they will not be able to remain competitive with inferior products.

no I don't have an agenda and don't work for any of these companies. I just know how to face the facts.

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