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DWDM

Nortel: Top Dog, but for How Long?

For the second time in two weeks, Nortel Networks Corp. (NYSE/Toronto: NT) has issued a press release claiming the leading market position in sales of "optical Internet" gear.

But scratching the surface of both announcements reveals that Nortel's boasts, while valid, gloss over its continuing small share of the high-channel-count DWDM market. Further, analysts say Nortel must act vigorously to keep its overall place.

Let's take it from the top: In last week's announcement, dated February 19, Nortel says market research firm Ryan Hankin Kent Inc. (RHK) reported Nortel to have a 61.4 percent share of the North American long-haul DWDM market -- double the share that RHK gave it one year ago.

The overall North American market for DWDM in 2000 was $7.7 billion, according to RHK. The firm divides up the DWDM market into two segments, however, and Nortel doesn't dominate them both.

The first segment in RHK's taxonomy for 2000 devotes $6.1 billion of the overall DWDM market to systems with channel counts lower than 40 -- a segment that Nortel led with a 72 percent market share, according to RHK's research.

Low Channel Count DWDM Systems RHK's second segment includes so-called high-channel-count systems, with more than 40 channels -- a market RHK sizes to have been $1.6 billion in 2000. Nortel has just 10 percent of this chunk, which is led by Ciena Corp. (Nasdaq: CIEN) and NEC Corp. (Nasdaq: NIPNY).

High Channel Count DWDM Systems Nortel's lack of presence in this division could be cause for concern, since that area is slated to be among the fastest growing in optical networking. For example, in publicity for a separate report on optical components, RHK cites "performance improvements -- such as higher channel counts" -- as drivers for triple-digit growth in DWDM systems over the next three years.

It's also worth noting that Nortel's share of the high-channel-count DWDM market didn't increase from 1999 to 2000 (see Nortel Spins Past Ciena).

The conclusion? Nortel must hustle if it means to keep its top spot in DWDM. It could lose out to other players quickly if high-channel-count systems start to predominate.

This analysis is borne out by research touted in this week's market share announcement from Nortel. On Tuesday, the company announced that research from The Dell'Oro Group shows Nortel to be top dog all 'round.

DWDM Long Haul Market DWDM Metro Market Sonet/SDH Market But report author Shin Umeda issues some caveats.

First, Dell'Oro does not use the same type of breakdown in its figures that RHK does. Instead, the firm sticks to sales counts it gets directly from the vendors in making its tallies. In the case of Nortel's long-haul DWDM figures, the vendor gloms together sales of its S/DMS Transport Node, an older product that works only with Nortel's Sonet add/drop multiplexers, and its newer Optera LH 1600, which isn't dependent on those ADMs.

It's an important distinction, some say. Nortel's products based on legacy Sonet and SDH (which Umeda estimates account for over half of all Nortel's optical revenues) are predicted to start phasing out as carriers demand next-generation gear with multivendor compatibility and higher channel counts.

Umeda says Nortel refuses to divulge which percentage of its long-haul DWDM revenues come from which products. Nortel confirms this. But a Nortel spokesperson says, "Optera LH definitely makes up the majority of our revenues in this space, and even without [the older products being included] we'd still have the number one spot."

For the record, Umeda says Dell'Oro has included only revenue from equipment in its reporting; no service and support is included. Also, he asserts that he's not double-counting DWDM equipment; what's counted in long haul does not appear in metro.

Other analysts confirm that Nortel needs to avoid complacency about its market position, in light of the changing nature of the DWDM market. "Nortel has a lot of old equipment that's intimately linked to its old-style ADMs," says Mark Storm, optical networking program leader at research firm Frost and Sullivan. "The [S/DMS] is where the bulk of the revenue is, and they're challenged to make the transition [to next-generation gear]."

He also says market researchers themselves need to revamp their taxonomies. "There's a key transition going on from Sonet/SDH to next-generation gear. It takes a while to slice and dice it all." He says researchers must avoid inflating the numbers by counting too much, while making sure not to miss the key trends by forcing new gear into old categories.

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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watan 12/4/2012 | 8:49:52 PM
re: Nortel: Top Dog, but for How Long?
The article talks about count but it does not talk about capacity...If theses channels are 2.5G
or 10G or maybe 40G
Petabit 12/4/2012 | 8:49:52 PM
re: Nortel: Top Dog, but for How Long? Since the market share report has been dug up again, I'll repeat what I said about it the first time (over on Raging Bull):

http://ragingbull.lycos.com/mb...

"You can spin market share any way that you want. By dividing the categories, you can be the number one vendor in something. You can get an understanding of this from comparing the product families:

Nortel's primary product (MOR) was launched in 1997 and carries 2.5G and 10G traffic over 32 wavelengths. This is what is generating most of the revenue. They introduced the new platform (OPTera LH 1600) in mid 2000, which can carry 40 channels of 10G today (scaling to 160 in 2001).

So I'm very intrigued how NT could get 4% market share of 40 channel systems in 1999, since they didn't have a product then. The number will be very different for 2000.

My point is, if you set the 'high-channel count' breakpoint to 40, Ciena will have enormous market share. Set it to 32 and Nortel will win.

Nortel will ship a 160 channel in 2001, Fujitsu have promised a 196 channel system. So I guess Fujitsu will have 100% market share in the above 180 channel systems! "


Which all goes to show that using the number of channels is really pointless. How about we choose a breakpoint of 500 Gbit/s for a single fibre - half a terabit. Oh look! Nortel has 100% market share since it is the only company to have a customer using that much capacity.

I know, an even better way - let's compare the number of LEDs on the front panels - or the combined weight of the equipment...

Channels don't matter. Bits matter. Customers pay for bits.

P.

lightreader 12/4/2012 | 8:49:51 PM
re: Nortel: Top Dog, but for How Long? definitely NOT 40G......
photonic314 12/4/2012 | 8:49:50 PM
re: Nortel: Top Dog, but for How Long? ...I may be all wet but those of you who decide to bank on higher bit rates per channel technology as a sound investment...40G...80G...320G...are probably the same ones who claimed back 10 years and change ago that the then new dispersion shifted fiber will solve the dispersion issue...and then out of no where non linearities such as 4wm like magic appeared!

I believe we have reached the break even point at 10g per channel relative to cost per bit...
fernphoton 12/4/2012 | 8:49:48 PM
re: Nortel: Top Dog, but for How Long? You brought up some good points. What do you think of Sorrento Networks? Their products etc., for the metro market?

Thanks
fernphoton 12/4/2012 | 8:49:48 PM
re: Nortel: Top Dog, but for How Long? You brought up some good points. What do you think of Sorrento Networks? Their products etc., for the metro market?

Thanks
davey59 12/4/2012 | 8:49:48 PM
re: Nortel: Top Dog, but for How Long? OK, Nortel may have announced the 160 channel DWDM system, but can they deliver given that some vendors probably cannot keep up with delivery promises?
wdog 12/4/2012 | 8:49:47 PM
re: Nortel: Top Dog, but for How Long? Don Smith from Nortel spoke at the Lazrd Freres & Co conference today and talked about the HDX, Nortel's future big cross-connect. He said that the HDX doesn't support STS-1 grooming and relies on front-ending the HDX with multiple DXs to groom to STS-1. The Ciena CoreDirector supports STS-1 grooming. The HDX isn't competitive. I'm sure Don's presentation is available somewhere on the web if people want to check it out.
y2k 12/4/2012 | 8:49:47 PM
re: Nortel: Top Dog, but for How Long? According to Nortel's website:

"The OPTera Connect family includes: the OPTera Connect DX fits into high density long haul and regional applications that require SONET/SDH STS-1 grooming with support for high capacity interfaces up to 10Gb/sec; the OPTera Connect PX that provides pure-photonic switching for wavelength management; and OPTera Connect HDX provides multi-terabit switching for ultra high-density core networks."

This sounds like the DX is competitive to Ciena's CoreDirector switching at STS-1 granuarity up to 10 GHz. The PX is their Xros product. And the HDX is souped-up version of their DX machine.

So may be the DX machine is a better comparison with the CoreDirector. Any comments, Wdog? Thanks.

--y2k--
y2k 12/4/2012 | 8:49:46 PM
re: Nortel: Top Dog, but for How Long? Cool...thanks.

Their website for the HDX product mentions potentially they can switch 7.68 THz in one bay which would be 3,072 channels of OC-48 (2.5 Ghz) or 768 channels of OC-192 (10 Ghz). Comparing this to CoreDirector which is 256 channels of OC-48 in one bay. Their website also talks about OC-748 (40 GHz).

http://www.nortelnetworks.com/...

Is this correct, alloptical2000?

This all sounds good on paper. But is it too late? Ciena is now shipping revenue boxes. My guess is that Ciena has a migration path as well and there is no way that they will fall behind. These products have OEO switch fabrics so the limitation is just Moore's Law.

Anybody knows anything about the PX (aka Xros) product?

--y2k--
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