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100G Action Spurs Optical Optimism

Light Reading
News Analysis
Light Reading
7/31/2013

A new wave of optimism has been sweeping through the optical equipment sector in recent weeks, with companies such as Ciena and Infinera offering bold growth projections following their quarterly earnings and Alcatel-Lucent boasting a strengthening order book. (See Charges Slam AlcaLu's Q2.)

Investment analysts have reacted accordingly. This week, Needham & Co. analyst Alex Henderson endorsed Ciena's cheery outlook with a "buy" rating and a bump in his target price for Ciena's stock from $22 to $28 -- it currently commands $22.35.

At the same time, he also reiterated "buy" ratings on both Infinera and NeoPhotonics.

Henderson said he's basing his price target bump in large part on discussions with components suppliers, who say Ciena has been accelerating orders for coherent processing components of late. That could indicate that carriers are increasing demand for 100G coherent systems for long-haul and other deployments.

But Henderson cautioned against believing a sector-wide boom is in the offing.

"Some people will look at this and say that the rising tide will raise all ships," he told Light Reading. "That's not what this is. It really depends on the business mix of the individual companies. You have to look at the companies in this sector as individual names, and see how much of their business is in 100G coherent and how much in legacy products."

Ciena and Infinera both appear to be benefiting from an increase in 100G deployment deals in China and Europe in particular, Henderson noted. "Only now are we seeing 100G become cheaper than deploying 10x10Gbit/s, so we may finally be at the beginning of this next upgrade cycle," Henderson added. (See GTS selects Ciena.)

Ciena last month saw its stock price jump following a fiscal second quarter sales boost from its 100G portfolio. (See Ciena soars on 100G.)

Meanwhile, Infinera is expecting the current reporting period to be its first profitable quarter since 2010. (See Infinera Predicts a Profitable Q3 .)

Henderson also recently singled out NeoPhotonics because of the component supplier's strong position on coherent technology and its position as a major supplier to Huawei Technologies Co. Ltd., which is playing a major role in the China Mobile Ltd.'s 100G coherent optical deployment.

-- Dan O'Shea, Managing Editor, Light Reading

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mark-r
mark-r
7/31/2013 | 8:53:00 PM
re: 100G Action Spurs Optical Optimism
So what are the fundamentals driving the '100G' network equipment market?

A recent ACG Research report states:
>>
Poor utilization of the optical core and limited integration of the optical and packet cores: Integration of information flows and control between the optical and packet cores is needed to raise overall network utilization well above current levels. Current packet and optical networking protection schemes rely on redundant network links and simple fail-over schemes. Consequently, the packet and optical networks are typically designed to maximum utilization levels of 50%. Furthermore,because there is little integration between the optical and packet cores overall utilization falls well below 50%. One Tier 1 provider estimates that its core network operates at 12% utilization.
>>

If one thus gets, even with all the resources available for a tier-1 SP, only ~12Gbps effective bandwidth per a 100Gbps port (which will continue to be expensive, especially when linerate packet processing is necessary at router interfaces), wouldn't it be better to rather use technologies that get higher effective bandwidth from 40Gbps or (parallel) 10Gbps ports?

Moving to ever coarser granularity of physical layer bandwidth channelization with the (by itself implementationally inefficient) 10^n*Gbps physical links, the bandwidth efficiency will only get worse as the nominal bit rates would increase.

We need efficiency now, not just higher marketing numbers (100..0G).
DOShea
DOShea
7/31/2013 | 8:40:36 PM
re: 100G Action Spurs Optical Optimism
Hearing last month that Ciena's stock soared on 100G made me queasy, remembering the days when optical firms flew too close to the sun, then crashed and burned before rising from their own ashes again--to mix a few myths and metaphors. A 27% price target bump is not exactly a light pat on the back, but at least he's being picky with his praise.
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