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Coriant Counts on NSN's Optical Strengths

Light Reading: Even so, Patrick, when you told your firm, "Hey, let's invest in optical," what kind of response did you get? Optical doesn't exactly have a lucrative reputation. DiPietro: It does not, but one of the purposes of private equity is to renovate. Look at market valuations of public companies. They do not represent the value of those companies. For crying out loud, every single bit that is generated by a smartphone ends up on the pipes. They're absolutely essential. As Herbert said, you can switch out a BTS or an RNC quite easily. You cannot do that with this stuff. We do believe in the thesis that the market's over-serviced and nobody's making any money. That has to change, because operators need strong vendors, and we're at the point where that rationalization should be taking place. So, in effect, we've thrown the pebble in the pond. This [Coriant] isn't a bad thing to start with. It's a company doing, well, a "substantial" revenue. It is very large already, over 200 customers, hundreds of thousands of nodes deployed. Light Reading: It does seem like a good foundation. I think a lot of people were hoping that two of the large players would somehow get merged, effectively eliminating one. DiPietro: But you'd have so much product duplication. Light Reading: That's why it hasn't happened ... DiPietro: Look at what Alcatel-Lucent did. I can give you a little anecdote. When I was at Nortel, I was responsible for the core network of 3G. Then I left to become a VC. Several years later, Nortel, in their infinite wisdom, sold that to Alcatel-Lucent. Then, Alcatel-Lucent had three core networks: the original Alcatel RNC -- I'll talk about them as if it's the RNC, but it's the whole core network -- the Lucent RNC and the one they bought from Nortel. They spent three years doing internal bake-offs. Light Reading: Internal bake-offs. Just internal? DiPietro: Internal. Not talking to customers. And then the rationalized it and they picked my RNC. Then they took three other years to actually change out all their RNCs in the planet to be that RNC. that was done in 2000. by the time they replaced all the RNCs, four Moore's Laws had elapsed. I mean -- you cannot have that happen, right? Merz: And you can now see the industry situation, that is to a certain extent different. These guys who don't have 100Gbit/s today -- as soon as the market fully changes to 100Gbit/s, these guys are dead. Which means there are four left. Huawei is one, but Huawei is blocked in the U.S., which leaves, then, three, which is us, Ciena and ALU. ALU are running minus 20 percent year-over-year growth and is losing 200 million to 300 million euro -- what do you think will happen? They will need to do something, sell whatever. If we take those guys out, it's Ciena and us: only two, which, from my point of view, will be sustainable. Ciena this year is only $100 million negative, and the stock is going up because [investors are] so happy they've reduced their losses. What do you think would happen if it would bring our company to the stock market, earning money, compared to Ciena? Ciena has a 0.9 [price-to-sales] valuation now and is significantly losing money. We would be profitable with a footprint maybe a bit smaller.
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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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