Ciena is bucking the gloom and doom trend that seems to be pervading the telecom equipment sector of late, today announcing very upbeat second-quarter results and a positive outlook for its immediate and long-term future. Even as he called the results "excellent by any measure," however, Ciena CEO Gary Smith took pains to separate his firm from its vendor brethren, saying this quarter's strong numbers reflect "an increasingly differentiated financial performance."
"We've talked for some time about our belief that in this changing industry environment and structure, we will see winners and losers emerge and that Ciena is positioned as one of the clear winners in this industry shakeout," Smith told analysts on his company's earnings call. "As the only vendor able to address the systems, software and component markets, we are delivering innovation ahead of the competition that directly address the changing business and consumption models of our customers."
In an interview with Light Reading following that call, Smith reiterated that point, calling out only Huawei and Nokia as competitors likely able to make the global-scale R&D investment and maintain the high-level relationships that are both critical to success. The long-time Ciena CEO says his company's current success is based on long-term investments in both technology and markets and that its advantages are not short term.
Having invested heavily since "the nuclear winter" of 2001-02 in "being the best in the world at moving bits," Ciena is now seeing those investments produce financial results because it can address all the major growth areas -- metro and longhaul optical, data center interconnect and submarine cable, Smith says. "Now the investments we are making are in automation, to be the best at automating how the bits are moved. That is way more nascent, and it is not really showing up on our revenues too substantially yet."
But it will, he claims, and Ciena will continue to invest in that space, including potential acquisitions beyond its strategic purchase of Cyan and its BluePlanet orchestration platform.
Similarly, long-term investment in markets is paying off as well, Smith says. Ciena is riding the India market boom because it entered that space 12 years ago and has 1,000 people there, working in both R&D and market development/sales. What the vendor now is doing is leveraging its work there and elsewhere in the world to become more of a strategic partner to the web-scale giants, as they expand globally.
Such global expansion is complex, he says, because it requires understanding of regulatory environments and relationships with the Tier 1 network operators that often control the networks and customer connections. Because Ciena is already in these markets, selling equipment to many of those network operators, it can leverage those relationships in a three-way strategic alliance that reinforces Ciena's sale of equipment to both partners.
"We can leverage not just North American relationships with these guys but actually help provide their network needs on global basis including submarine and terrestrial in other parts of the world," Smith says. "We develop a three-way partnership where we will work with content folks and Tier 1 operators to facilitate the right kind of capacity for them."
Ciena is also a long-term player in the submarine cable space, starting with network upgrades but now, as the web-scale players drive a booming market there, the vendor is positioned for substantial growth in that segment as well, he says.
And all of that is before factoring in what Smith feels is Ciena's primary technology advantage: its WaveLogic Ai and Liquid Spectrum products. The former delivers up to 400 gigabits per wavelength and targets every part of the optical network sector and the latter combines WaveLogic Ai with BluePlanet's management to automate spectrum delivery. (See Ciena Unveils Its Logical Next Step and Ciena Adds Apps for Optical Network Flexibility.)
"People think of this as a cycle and some leapfrog each other, but it's way broader than that and you need way more to play than just your own chipset," Smith comments. Most vendors today don't produce their own chips, which Ciena does, but the real advantage is having built an open architecture and ecosystem around that, he insists.
Where all that gets leveraged, and one big reason Smith says the current results are sustainable, is in the coming "fiber densification" of the network, to be driven by ever-fatter data center interconnection and local access fiber for 5G deployment and cable's fiber-deep initiatives.
"From our perspective, we have consistently been ahead of innovation cycle on this," Smith says. "We put a tremendous amount of resources on this technology. With [WaveLogic] Ai, it is in a single manifestation from a platform point of view that can optimize capacity on any application -- DCI, metro, longhaul, subsea -- but it's really about being programmable. The barriers to entry we are putting in place from a technology and talent point of view are pretty strong. And the confluence of technology and global scale is a critical piece of that."
— Carol Wilson, Editor-at-Large, Light Reading
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