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Report: Tellium Core Switch Takes Hold

Light Reading
News Analysis
Light Reading
11/28/2001

New figures from RHK Inc. show Tellium Inc. (Nasdaq: TELM) has significantly increased its share of the worldwide optical core switching market at the expense of rival Ciena Corp. (Nasdaq: CIEN) (see Tellium Boosts Market Share).

RHK says Tellium holds 29 percent of the $465 million worldwide optical core switching market (located mainly in the U.S., Canada, and Europe) and 34 percent of the $380 million North American market.

In 2000, Tellium owned 19 percent of a market valued at roughly $83 million, essentially isolated to North America, according to RHK. The new estimates give Tellium a 10-point market share gain.

RHK's figures also show Ciena Corp. (Nasdaq: CIEN) has dropped 14 points in its worldwide share -- a situation that RHK says indicates carriers are preferring Tellium's switches over other vendors' in core networks.

Indeed, RHK says Tellium is the market leader for core grooming switches, which selectively aggregate and manage specific STS48 links (2.488-Gbit/s increments of larger Sonet connections) between carrier central offices. RHK says Ciena leads in edge grooming, where STS1 granularity is needed to effectively bring enterprise traffic and private lines into the optical core.

So far, RHK says, a lack of products precludes any leadership in pure photonic switching, the third category in RHK's optical switching taxonomy.

Opinions differ as to why Tellium's share has grown so much so fast. "The marketplace is speaking. Our product actually does what we say it does," says Tellium CEO Harry Carr. Tellium's choice to focus exclusively on selling its switches as a core solution is paying off, he maintains, because carriers see savings in capital and operating costs with a switch tailored to fit core requirements without extra programming or modification.

RHK thinks there is substance to Tellium's claim of being more economical, but the firm hasn't been able to nail down the specifics. "There appears to be some kind of time factor involved," says Dana Cooperson, director of optical transport at RHK. She thinks Ciena switches may take a trifle longer to set up for STS48 grooming than Tellium's are -- which translates to a bit more operating expense. But she is careful to say her research isn't completed yet and that she needs to confer with Ciena before making a final call.

Ciena, not surprisingly, isn't buying any of this. Spokespeople say they don't see any decrease in Ciena's presence or increase in Tellium's competitive threat among carrier customers. "This is one market researcher's opinion," says Dennis Bilter, senior director of marketing at Ciena. As for assertions that Tellium's gear may be more intuitive in managing core links, he asks: "Do you really think carriers would buy switches from us for their core networks if they were more expensive?"

And Bilter says "many customers" are using Ciena's switch in core applications, which speaks to his argument with RHK's approach to sizing the market. "I don't know where they're getting their categories. If you look at a scorecard of carriers buying switches and look at who they're buying from, at the wins and losses, you'll get a good indication of what's happening," he asserts. Right now, Bilter maintains, Ciena has 19 confirmed carrier customers. "And the list isn't declining."

In time, the numbers and customers would have to confirm whether Tellium is indeed stealing business from Ciena. Right now, such evidence is difficult to document. Despite better-than-expected quarterly results and stock lockups that exhibit management confidence (see Tellium Stock Pops After Earnings and Tellium Execs Lengthen Their Locks), just two customers are generating revenue for Tellium -- Dynegy Inc. (NYSE: DYN) and Qwest Communications International Corp. (NYSE: Q).

Harry Carr is standing by claims that more announcements will be coming forth before year's end. "There's no change to that guidance," he says.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com

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opticalnutjob
opticalnutjob
12/4/2012 | 7:30:58 PM
re: Report: Tellium Core Switch Takes Hold
"There appears to be some kind of time factor involved," says Dana Cooperson, director of optical transport at RHK. She thinks Ciena switches may take a trifle longer to set up for STS48 grooming than Tellium's are -- which translates to a bit more operating expense. But she is careful to say her research isn't completed yet and that she needs to confer with Ciena before making a final call.
does this mean dana cooperson didn't confer with ciena before the report??? i have a hard time believing that since they're the market leader... maybe she doesn't want to bash them publically.
-ONJ
boson3
boson3
12/4/2012 | 7:30:58 PM
re: Report: Tellium Core Switch Takes Hold

The market share quoted in dollars is interesting, but it doesn't say much about the actual number of nodes deployed.
lightmaster
lightmaster
12/4/2012 | 7:30:55 PM
re: Report: Tellium Core Switch Takes Hold
Yes, people care. An OC-48 consists of 48 STSs (assuming it is channelized). It may also consist of 1344 VTs (T1 equvalents), but for long distance applications things have traditionally been switched at the STS level. All 48 of the STSs come from the same place, but may not be going to the same place. Grooming allows them to be taken apart and re-combined into new OC-48s based on common destination.

Non-grooming cross connects make the arguement that traffic is either (1) fully groomed at the source into OC-48s headed to the same destination (easier said than done) or (2) concatenated data pipes that don't need grooming. Not having to screw around at lower granularities should, in theory, lower costs. Ciena seems to be making the arguement that grooming is needed in enough of the cases that it's worth the extra cost in the channels that don't need it. Once again, sounds reasonable on paper. The "correct" answer will depend on specific network traffic and may differ from carrier to carrier and even among applications within a single carrier. That's why both are selling product.
manoflalambda
manoflalambda
12/4/2012 | 7:30:55 PM
re: Report: Tellium Core Switch Takes Hold
Hey all,

So, Tellium will go (?, this is FY2001 estimates correct... ) from 19% of 83m (15.8) to 29% of 465 (134.9). Ciena will go from 60% of 83m (49.8m, article says Ciena share dropped 14% to 46) to 46% of 465 (213.9m)? Do these numbers sync with sales reported thru 3Q01?

Does the report breakdown the 465m into STS1 OEO, OC48 OEO and OOO?

Salute,
Manoflalambda
twistedcopper
twistedcopper
12/4/2012 | 7:30:53 PM
re: Report: Tellium Core Switch Takes Hold
TELM has managed to corner 29% of the market with just 1.5 customers... just wait until they have 19+ like ciena... they'll dominate!!!!
-twisted
manoflalambda
manoflalambda
12/4/2012 | 7:30:53 PM
re: Report: Tellium Core Switch Takes Hold
Hey all,

So, Tellium will go (?, this is FY2001 estimates correct... ) from 19% of 83m (15.8) to 29% of 465 (134.9). Ciena will go from 60% of 83m (49.8m, article says Ciena share dropped 14% to 46) to 46% of 465 (213.9m)? Do these numbers sync with sales reported thru 3Q01?

Does the report breakdown the 465m into STS1 OEO, OC48 OEO and OOO?

Salute,
Manoflalambda
wdog
wdog
12/4/2012 | 7:30:51 PM
re: Report: Tellium Core Switch Takes Hold
Why grooming in the core.

If you look at a typical long haul carrier's network they tend to want large pipes between major switching centers, OC-48 or OC-192. However the services they sell are usually much smaller T3 (equivalent to STS-1). The ability to groom allows a carrier to provision smaller services end-to-end through their network using their capacity efficiently. As long as T3, OC-3, or even OC-12 services make up the bulk of the provisioned circuit business for carriers, they are going to care about the ability to groom traffic end-to-end through their networks.

It is misconception that Tellium's non-grooming switch is lower cost, or faster to provision, or faster at protection switching, or better at anything because it doesn't support STS-1 level grooming. A well designed grooming switch can do anything a Tellium switch can do at competitive costs. Tellium has had their switch on the market longer than Ciena and they won some contracts early on when they were really the only vendor out there. However, two out of their three contract customers have decided to not deploy or at least delay depolying the Tellium switch but have deployed the Ciena CoreDirector. Could it be that Qwest and C&W discovered that they don't really need the Tellium switch?
Scott Raynovich
Scott Raynovich
12/4/2012 | 7:30:51 PM
re: Report: Tellium Core Switch Takes Hold
Controversial topic. It is not clear what RHK's position on this is. We are trying to verify. In the meantime, we have removed the offending passage (and the messages related to it) until we can verify RHK's position.
optigirl
optigirl
12/4/2012 | 7:30:51 PM
re: Report: Tellium Core Switch Takes Hold
The other issue in this whole debate is that 2 of Tellium's customers received warrants for doing the contracts. They don't talk about it anywhere but it's true.

Sickamore ran the same racket with Williams to get some market traction (and PR out of it) but where are they now?

I would be a little less skeptical of the company's claims if there were no warrants involved or if a major carrier was deploying their gear.

I won't bother to comment on RHK's role in all of this given their stellar reputation in the market...

becca
optical_ranger
optical_ranger
12/4/2012 | 7:30:49 PM
re: Report: Tellium Core Switch Takes Hold
twistedcopper,

You are definitely "twisted" on this one. Dynergy is TELM's best and really only true customer. Others were influenced by pre-IPO'ed shares. Ciena has a strong position, multi-product solution, and great price points. And no I am not a Ciena employee or shareholder....
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