At least a dozen marketplace reverberations of differing magnitude can be discovered from what was an indeed an earthquake of a deal announcement by Cisco Systems, in that worse than the irritating amount of perhaps, unprecedented pandering in the industry, was its destructive nature on a significant number of suppliers and users. fibeReality provides the following 12 impacts:
1) Cisco’s Technology Conflict
“Luxtera” and Acacia each have expensive 400G DR4 R&D programs.
2) Analysts Furthering Cisco’s Myth
Given its powerful PR machine, some analysts have heavily bought into a long-term, vertical integration narrative in optics by Cisco, such as that NeoPhotonics could be a potential acquisition candidate. (Of course, lasers did not fit into the model, established by Cisco, in cornering the market, during the early 100G days, and the one point that should be taken seriously as expressed by the vendor, both recently and in previous years, is its high comfort level in working with devices, closely resembling ASICs.)
3) Really Lousy Timing for ZTE
Along with having to recover from the ban on components established last year, the news of Cisco’s buyout came right at the time ZTE was designing-in Acacia’s DSPs into its modules.
4) Component Suppliers Walking on Eggshells
As we illustrated with the example of NeoPhotonics, as followers of our second blog were able to see, it managed to avoid straddling the fine line to keep from alienating a large buyer like Cisco. (However, there is a risk by the former in not being outwardly sensitive to the debilitating effects on several system houses, as well in evading the matter of a loss of a sizable ACO/DCO purchaser, from the perspective of the investment community).
5) Lumentum’s Strategy Shift
In contrast to NeoPhotonics, while Lumentum did walk through the minefield in reconciling its market position, vis-à-vis the new Cisco-Acacia arrangement, on its last earnings call, in suddenly talking about another $40 million savings in cost synergies with Oclaro, it signaled the huge importance of its relationship with Acacia, including the possibility being eliminated for future considerations.
6) Silence by IPG Photonics/Menara
It was a bit of a surprise that there was no discussion on the last quarterly call nor at the Oppenheimer Technology, Internet & Communications Conference on DSP development by Menara Networks, although the timing may have played a role in that IPG is struggling with the current decline in demand for commercial lasers. (It should be noted that any perception that we missed the irony in not being clearer in the text in on our article on Inphi, in referring to Menara as the next “ClariPhy,” was inadvertent.)
7) Infinera’s Marketing Bind
The supplier is caught in a quandary, given the admitted, disproportionate value of its Groove product, which is dependent on Acacia’s gear, while only having its ICE4 available from the PIC side of the house (although Infinera is at least beginning to walk back the hype on the ICE6).
8) Arista’s Miraculous “180” on Message
Indirectly getting back at Microsoft could have been a part of the dramatic change in Arista Networks’ rhetoric away from Co-Packaged Optics (CPO) as well from data rates at least as high as 800G optics. (Cisco’s purchase of Luxtera, even though the former itself hardly envisions CPO being around the corner, granted its motivations for the buyout were mixed, likely played a role, and Arista’s change in focus towards the enterprise/campus space had to be a big reason for a new emphasis on 100G — albeit, later tempered, as well as in legitimately lowering expectations for 400-gig, which have been unduly heightened with the Acacia buyout.)
9) Inphi’s New Status Underemphasized
Even Inphi signaled to the space that it supposedly is having some reluctance to move to the higher-end with its coherent DSPs – but, it is really communicating that it expects to get a lot of financial and technical support from customers (as currently happening with ADVA Optical Networking), in exchange for making this new leap.
10) Juniper Starting to Eat Crow on SiPh
Juniper Networks appears to be moving away from the story of potentially being more self-sufficient from an optics standpoint because it increasingly looks silly in the context of Cisco’s two major acquirements.
11) AT&T Hits the Ceiling
For a good number of years, AT&T has been attempting to extract itself from being locked-in with Cisco, and the supplier gaining control of Acacia only exacerbates the situation, in terms of the OEM deals concerning the merchant vendor, accompanied by its heavy involvement with the service provider’s Labs group.
12) Hyperscalers Taste Their Own Medicine
There is a certain amount of justice in the Web 2.0 operators having to suffer with the prospect of fewer options, as they have been willing to engage in so many devastating tactics in reducing the pricing of transceivers to unsustainable levels for a good number of componentry firms.
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As always, fibeReality does not recommend any securities, and this writer does not invest in any companies being analyzed by us.
[written by Mark Lutkowitz]
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