XO Shows Some Love for Transmode

Swedish transport equipment vendor Transmode Systems AB has made a major breakthrough in North America with the signing of a five-year frame contract with U.S. enterprise and wholesale network operator XO Communications Inc. . (See Transmode Boosts XO Metro Capacity.)

The vendor is supplying its TM-Series WDM platform and associated services for XO's metro capacity upgrade. Transmode's Marketing Director Jon Baldry says the company is "one of the pool of vendors that XO now chooses from and we have positioned ourselves to participate in the capacity upgrade along with [XO's] existing suppliers. The ball is rolling."

The existing vendors for metro DWDM deployments are Ciena Corp. (NYSE: CIEN) and Cisco Systems Inc. (Nasdaq: CSCO), according to an XO spokesman. (See XO Picks Ciena.)

Baldry says no financial details are being released and that the resulting revenues are hard to predict as the deal is a frame agreement, which means the volumes of equipment supplied will vary as XO makes its rollout decisions. The Transmode man, though, says the revenues could be "substantial … operators don't add vendors onto their supplier lists just for the sake of it."

Investors in the vendor, which joined the Stockholm stock exchange in May 2011, aren't excited about the deal, though, as Transmode's share price remained almost unchanged Wednesday morning at SEK 78.75 (US$11.31). (See Transmode to IPO.)

Transmode generates the majority of its revenues from Europe, but is building its sales in the Americas steadily and has been expanding its technical support capabilities in Dallas. In the first quarter of this year its revenues from the Americas totaled SEK55.9 million (US$8 million), almost 24 percent of the quarter's total of SEK 235.2 million ($33.8 million). (See Transmode Makes Q1 Profit of SEK31.2M.)

Why this matters
This is quite a big deal for a small but expanding vendor such as Transmode and shows that it has the ability to break into the Tier 2 carrier market in the U.S. despite the fierce competition.

It's hard, though, to figure out quite what impact this might have on Transmode's financials, as XO won't say what its metro network capex plans are for this year. In the final quarterly earnings announcement before it went private in August 2011, XO noted that its total capex for the first half of last year was about $108 million. (See XO Goes Private.)

It's also a reminder for the likes of Ciena and Cisco that even their well-established customer relationships on their home turf aren't exclusive and that there's always room for new blood.

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— Ray Le Maistre, International Managing Editor, Light Reading

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