Tellabs Strengthens Optical Outlook

Recent updates to Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA)'s 7100 Optical Transport System (OTS) could solidify its position with key carrier customers and help the vendor grapple with rival suppliers, an analyst says.

Over the past year, Tellabs has increased the 7100's optical transport capacity, as well as adding advanced Ethernet capabilities and a unified switching fabric to the platform. (See Tellabs Intros 40G Upgrade and Tellabs Adds Ethernet.)

Heavy Reading senior analyst Sterling Perrin says the new capabilities could help the company maintain its optical transport business with Verizon Communications Inc. (NYSE: VZ), especially in light of the carrier's recent selection of a second optical transport vendor.

"If anyone's hoping that [Tellabs will] disappear in optical transport in Verizon, that looks unlikely now," Perrin says.

Earlier this year, Verizon chose Fujitsu Network Communications Inc. 's Flashwave 9500 platform as a second source for packet optical transport, beating out Alcatel-Lucent (NYSE: ALU) and Nortel Networks Ltd. through a request for proposal (RFP) the telco issued last summer. (See Tellabs Updates 7100, Tellabs Updates 7100, and Verizon Preps God Box RFP.)

At the time the selection was made, it looked like Fujitsu's platform -- which, sources say, was more or less built to spec for the Verizon RFP -- might steal away a good hunk of Tellabs's optical transport business with the carrier.

Since then, Tellabs has gone a long way toward making the 7100 comparable to the Fujitsu offering. The addition of carrier Ethernet capabilities and a unified switching fabric "put [Tellabs] in the running for more packet optical business and positions them well against Fujitsu," Perrin says.

What's more, Fujitsu might not yet be able to handle 40 Gbit/s. The vendor announced 40 Gbit/s capability for its older Flashwave 7500 optical transport platform last year, but it has yet to add 40 Gbit/s to the 9500. In an email, a Fujitsu spokesperson writes: "The Flashwave 9500 is designed to handle 40G and 100G, but we currently do not offer either interface."

While Alcatel-Lucent, Ciena Corp. (NYSE: CIEN), and Nortel have all won 40-Gbit/s deployments, so far all those wins have been focused on long-haul optical transport. But Tom Rarick, principal engineer at Tellabs, says his company is seeing demand for 40 Gbit/s in the metro-regional segment of the market. (See Janet Deploys Ciena 40G and Nortel Takes 40-Gig to Verizon.)

"40-Gig in the metro ROADM [reconfigurable optical add-drop multiplexer] space is a pretty novel thing," Rarick adds. "But for those customers that want it, it's difficult to find an alternative."

The ROADM business is one bright spot in an otherwise gloomy picture for Tellabs. While access revenues slide and the company's legacy crossconnect business continues to dwindle, demand for the 7100 has been decidedly brisk, the company says. (See Wireless Slowdown Hits Tellabs, Tellabs Issues Profit Warning, and TLAB Shakeup Coming.)

According to Rarick, sales of the 7100 quadrupled in 2007, and growth is expected to continue in 2008. What's more, the 7100 platform carries higher margins than access products that have dragged the company down.

— Ryan Lawler, Reporter, Light Reading

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