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Coriant Counts on NSN's Optical Strengths

Optical? Really? Light Reading: Why would the business do better as Coriant than as Nokia Siemens? Herbert Merz, designated CEO: The sales engagement is different if you're making a big radio deal versus an optical deal. It's more meaningful if you get the transport, because the customer cannot easily change suppliers. If you're in the optical network, it's for the next 10 years. In a radio network, you can swap after two years. Nobody cares. Take the one, take the other. Then, if you look into the market, you see the whole competitive situation is broken. I mean, you see Ciena Corp. negative [i.e. losing money], ALU [Alcatel-Lucent] negative, Infinera Corp. negative, Tellabs Inc. negative. Most of the players, significantly negative. By the way, we are not negative. We are positive from Day 1: no debts on the balance sheet, big money to invest. We have, already a significantly different position. Light Reading: What's the goal going to be with Coriant? Merz: We are starting with the target of building a No. 2 or No. 3 pure-play vendor. Ciena is a big company. I think they will be around for some time. But the others will have significant issues. If you see who has a future-proof portfolio, which means 100Gbit/s coherent: Ciena has one. ALU has one. We have one. [Huawei Technologies Co. Ltd. too, as he'll mention later.] Whoever doesn't have a 100G will have an issue over the next years and needs to do something. Buying from Acacia Communications Inc. or somebody doesn't help, because they would mean margin stacking. You're not getting the profitability if you're giving 30 percent gross margin to these guys. We have a good technology in combination with financial strength. To become the No. 2 or No. 3 player organically would take five years. If we have the possibility to do some M&A around that, it's maybe only two years or three years. Light Reading: You don't see a need to acquire anything else? Merz: It's part of the strategic vision, but it's not needed in order to do it. Light Reading: How did the deal with Marlin come about? Merz: I went to my CEO a year ago, maybe now it was 15 months ago, and said, "Chief, if you want to do this successfully, I need to be able to invest. Are you giving me at least €50 million, maybe €250 million to invest?" He didn't say "Herbert, are you crazy?" but we came to the conclusion that the best way was looking around for somebody who could share the strategic vision of building a big player here and has the financial capability to do so. Long story short, Marlin is here. Patrick DiPietro, the Marlin partner who spearheaded the purchase from Nokia Siemens: I actually had an optical engineering background, because I did the OC48 and OC192 systems when I was at Nortel, then spent a decade doing startups. I have a good handle on how to form the company into a more startup-focused kind of company, a little more edgy. Pretty much every operator around the world will have to make the decision [about 100Gbit/s deployments] in the next couple of years. That's where I think we're moving into the wave. What we need -- in ASIC language -- we would have to have design wins. Those design wins will lock you in for five years, maybe a decade. For example, the design win for the entire AT&T network at 40Gbit/s, a sole-source design win that these guys [Coriant] have, has locked them in.
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saga2bc 3/19/2013 | 12:58:52 PM
re: Coriant Counts on NSN's Optical Strengths How could they possibly be competitive to Ciena, Huawei, Alcatel, and Infinera?
rgrutza600 3/19/2013 | 1:25:11 PM
re: Coriant Counts on NSN's Optical Strengths These guys talk big, but are not realistic. -áThey will fail. -áI can't see how anyone would buy from them.
Craig Matsumoto 3/19/2013 | 2:29:57 PM
re: Coriant Counts on NSN's Optical Strengths I can understand the skepticism. I kind of feel it too. One of Coriant's points is that a lot of the uncertainty and pain around NSN has been on the wireless side, and they're free of that now.

Of course, the optical side comes with its own uncertainty and pain.-á :)

Being the #2 player sounds awfully ambitious, although admittedly, market share is so spread out in optical that it might be easier than I think.-á At any rate - they do talk big, and I think they know it's not going to be as easy as they make it sound.-á One key would be to keep the R&D going, and of course DiPietro/Marlin know that.
Gabriel Brown 3/19/2013 | 2:54:42 PM
re: Coriant Counts on NSN's Optical Strengths Good interview. Thanks. I was interested in how it, indirectly, addressed valuations
of telecom vendors, the role of private equity, and M&A...

I know LR's always talked about this, but the discussion is evolving with the market.

Didn't agree with how dismissive he was about RAN swap outs. It's very obviously not
the case that operators change RAN vendors after two years. There's lock-in (commitment to a decision) there too, albeit of a different nature.
chuckj 3/19/2013 | 3:17:37 PM
re: Coriant Counts on NSN's Optical Strengths The only problem Telco suppliers have is Telco's themselves. -á They entice you to design new products and they always want the next one because they don't have any competition to force them to buy the one you just designed. -á That is why Cisco avoids this sector like the plague. -áThis will be another failure on a string of failures.
Craig Matsumoto 3/20/2013 | 4:24:45 PM
re: Coriant Counts on NSN's Optical Strengths -áDon't forget the year-plus qualification cycle, during which you get to sit and wait.-á :)

I'd disagree about Cisco avoiding the sector. I think they want to be big in telecom, and they've reignited their interest in optical to go with that.
Craig Matsumoto 3/20/2013 | 11:37:14 PM
re: Coriant Counts on NSN's Optical Strengths Amusing: Talked to 2 analysts who say they had this exact conversation with Coriant.

Some of that's to be expected -- Coriant has a message to deliver, after all, and some of my questions are the same anyone would ask.-á But apparently they're sticking very close to that message.
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