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II-VI/Finisar: Security Over Specialization

November, 2018

fibeReality has decided to add to its initial thesis on what compelled II-VI to buy Finisar. As our title suggests, there have been a large number of SOS signals sent out in the overall optics space, concerning shrinking margins across market sectors, and specifically, regarding the excessive amount of disorder, related to several players being horribly distracted going after Apple business, with a lot of their capacity to work on new transceiver technology being eaten up. So, even if the hyperscale data center operators were to come up with the necessary capital, the technical means alone to fully conduct the R&D work on 400GbE is not currently available. II-VI has also apparently concluded that the safer route is not the one it has been on, as a rather selective component specialist without an overriding strategy, nor the direction that both Finisar and Lumentum adopted, as a result of ...

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3DS VCSEL Race to the Bottom/Potpourri

November, 2018

Even as engineering capital and talent are being pulled out of the traditional optical transceiver space (once more, it is difficult to blame these vendors as the hyperscalers have massacred margins on lower data rates), and especially used in going after Apple’s business, exploitation of optical component vendors remains alive and well, despite all of the hard work by them. In the same way, it has been standard operating procedure for other big users, such as Cisco Systems, to expose technology, as fully as feasible. Apple makes a typical chip specification sheet, including for the six-inch VCSEL devices, increasingly thorough to the point that it resembles a set of instructions on its construction. Such methods, which often lead to a race to the bottom for componentry companies, along with Apple often being able to get a premium for its products, have been a powerful combination. In th ...

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Lumentum: Six-Inch VCSEL Retrospective

November, 2018

In view of fibeReality’s latest analyses which demonstrate the essential role that VCSEL wafers are planned to play in future product designs of all kinds at Apple, along with both of Finisar’s last two CEOs hardly appearing to do a satisfactory job in execution (although the vendor did have some hard luck on occurrences outside of its control), regarding their desires to play a dominant role in providing them, several of Lumentum’s public statements in this space can now be legitimately deemed as at least, arguably rational. In our opinion, whether they were all ethical and defensible, is a whole other matter. Certainly, before anything was actually shipped, Lumentum’s talk about a minimum of 50% gross margins, which could easily be characterized as a rapacious action, and would have been otherwise considered to be close to a suicidal type of move regarding its relationship with Apple, ...

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Suggested Texas VCSEL Strategy for II-VI

November, 2018

fibeReality has recently expressed its point of view that the II-VI-Finisar merger only really seems to makes sense in the context of Apple’s understandable concern over the 3D Sensing (3DS) manufacturing facility in Sherman, TX. Perhaps in hindsight, Apple’s “shot across the bow” was really meant to push the two firms to get a deal done. We have also written about the design ties between Finisar and Apple, which have been imperative in keeping the former in the running for VCSEL chip business from the latter. However, even assuming that II-VI fully makes any necessary adjustments on the process order at the plant, there is still a high level of risk of being a player in this space, especially increasing price competition, as we have discussed in the past. Not to mention that both II-VI and Finisar still have yet to have a proven track record that they can successfully produce even close ...

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Finisar Gives II-VI Design Arm to Apple

November, 2018

In fibeReality’s last blog piece we stated that Apple “had benefitted from its association with…technologists, [including those that have been part of Finisar’s 3DS (3D Sensing) division]…on design work of all kinds, well before the delivery of any VCSEL chips.” We also pointed out the high probability that this customer perceived a threat to this long-term alliance, especially relating to the inadequate management of the supplier’s Sherman, TX plant, and thereby likely pressed II-VI to acquire Finisar. In fact, it would not be an exaggeration at all to characterize the work from some of the engineers at the latter as Apple’s design arm. This deeper capability, which Finisar possessed also applied to it in getting to the market first with 3DS VCSEL wafers for smartphones, as well as being the initial supplier (which definitely at the beginning, excited the buyer) considered for this appl ...

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II-VI: Disentangling Finisar at Both Ends

November, 2018

While there was initially hope on the part of at least some executives at Finisar with the new corporate leadership, it left a lot to be desired, which as it turned out, went well beyond messaging, when it came to running both its traditional and emerging optical businesses. Vis-à-vis the former, there has been a large amount of frustration by managers at the firm in splitting the company rather arbitrarily into separate units. With reference to the latter, the 3D Sensing (3DS) portion, fibeReality has discussed the fact that Finisar has been hemorrhaging critical VCSEL talent, and the principal reason for disenchantment, including by engineers still working for the manufacturer, is related to inexplicable noncompliance on a technological matter. In effect, we are fairly certain that Apple is quite alarmed by this state of affairs related to Finisar’s 3DS operations, as it had benefitted ...

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New Wrinkles Could Backup Optical M&A Rumor

November, 2018

fibeReality recently published the article, “ADVA/ECI Merger? Hasty Knee-Jerk Effect,” in which we presented the case about the drawbacks of such a combination. While all of the arguments should still be seriously considered, we just received some new intelligence, which may point to the need for a reassessment. In the previous piece, we commented on ADVA Optical Networking’s inability to penetrate the “three largest, incumbent ISPs in the US…when it came to optical hardware.” Certainly, we recall that the supplier tried to get into AT&T in the past via an OEM arrangement with Fujitsu Network Communications, but the latter made its own product line the priority, and the former, at least at the time, was just not set up to adequately deal with all of the organizational complexity of this large service provider. However, it is our current understanding that CenturyLink, has selected its tw ...

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Apple: 3DS VCSEL Learning Curve Edge

November, 2018

While fibeReality continues to see downsides for the 3D-Sensing (3DS) VCSEL component suppliers, themselves, Apple’s two-year head-start over any other company in the world in developing its own IP with these solutions gets an inadequate amount of attention, not only for the iPhone product line, but as a probable cornerstone technology in the future for other new types of offerings that it undoubtedly has on internal drawing boards. The vendor already has three different VCSEL chips being used in its high-end phones: the Dot Projector (DP), operating only towards the face; the illuminator, and the proximity sensor. Apple will likely put in another chip on the other side to do a Time of Flight (ToF) measurement for objects that are further away, just about assuredly, a second DP. Moreover, fibeReality is starting to have doubts about any kind of widespread use of Edge Emitters (EEMs) in s ...

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ADVA/ECI Merger? Hasty Knee-Jerk Effect

November, 2018

If a press account this past August was true that an ADVA Optical Networking-Coriant merger could not have been worked out, it may have been initially perceived in the industry to have been unfortunate. The two suppliers based in Germany would have complemented each other well with ADVA giving Coriant additional credibility, and the latter potentially providing inroads into the three largest, incumbent ISPs in the US, a goal, which has eluded the former when it came to optical hardware. Together they also would have been in a position to consistently get to that magic number of at least a billion dollars in revenue to not only ensure that necessary developments could be funded, but especially with European customers in the long term (another reason Nokia Networks would wish to exit is that its wireless archrival, Ericsson, for all intents and purposes, is out of the optics space, along w ...

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CommScope/Arris Combo: Sway of MSOs

October, 2018

Assuming the report of negotiations in Reuters is true, and if CommScope decides to purchase Arris International, despite dealing with some difficulties, it would likely result in a highly diversified juggernaut in combining powerful positions on both the passive and active sides of the telecom infrastructure business. In particular, given that fibeReality is bullish on the long-term viability of the networking of the MSOs, the statuses of the suppliers in this space would become even more dominant in that sector with a marriage. Yet, we also think that it may be reasonable to conclude that the major cable operators have not been totally happy with Arris, its major hybrid fiber/coaxial system vendor. At least on optics-related gear, we agree with the characterization of it being kind of a weak sister to comparable access players in the overall telecom market. Arris became the leading for ...

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Nokia’s Unchanged Strategy to Exit Optics

October, 2018

Even prior to closing the deal, Nokia Networks’ purchase of Alcatel-Lucent surrounded the former contemplating divesting the submarine optics division of the latter. The major obstacle with Nokia appeared to always be that the government in France would only accept a company in that country to purchase the assets. The goal of ridding itself of Alcatel Submarine Networks (ASN) first, has apparently remained in place. However, at first glance, from simply a financial perspective, with the boom created by the hyperscale data center operators, having stuck to this plan the whole time would not seem to necessarily make sense. In addition, the breadth of assets required to do new, very long-length undersea construction, would have made it even harder to unload. After reflection on the subject, we suspect that Nokia always understood that by eliminating the linchpin, the rest of its optical bus ...

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Debasement of Optical Market Research

October, 2018

In 1982, as a pre-law student at NYU, I walked into the office of employment leads at the university to see what jobs would be available over the summer. A consulting company downtown, called Northern Business Information (NBI), was looking for somebody who was as researcher and writer, and I said to myself that job was for me. I remained with the company for four years, becoming educated about telecom technology, figuring out corporate strategies, and other useful skills, and started its transmission research business, just as optics was starting to take off in the industry. Some of the most vital aspects of my experience at NBI included appreciating the extraordinary importance of doing independent, primary research as well as developing a healthy skepticism for any public statements made by equipment suppliers. As 2018 comes to a close, I have tried over the years to do my best to uph ...

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Ciena: ZTE Will Be Pursuing Retribution

October, 2018

fibeReality’s latest intelligence indicates that Ciena took advantage of the ban earlier this year against ZTE, allowing the former to take a significant amount of market share away from the latter in emerging markets, including India. Ciena’s unexpected, substantial jump in revenues last quarter seemed to at least partially reflect this strategy. However, the supplier may wind up paying a very high price for its short-term gains, especially in apparently gambling that the prohibition would remain in place for a long time. Like too many others, Ciena’s executives failed to see what should have been obvious -- that the Trump administration’s game plan has been to use sanctions and tariffs in order to bargain for better trade arrangements, not to come close to permanently keep them in place. Once again, we were not concerned about ZTE’s long-term viability. The problem now is that Ciena ra ...

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Google: Objectives and Undesirable Results

October, 2018

In the past, fibeReality has addressed the matter that Google/Alphabet’s publicly stated objectives in getting into new businesses, including in the optical realm, need to be viewed as part of its overriding goal of getting an increasing number of eyeballs to view advertisements on its search engine, its principal revenue producer. So, we read with amusement the following recent article: “Why Google Fiber Is High-Speed Internet’s Most Successful Failure,” in which it is stated “what if the company’s goal was never to unleash the disrupter itself so much as to encourage incumbent broadband providers to do so....?” Since 2010, this writer has been involved in maintaining that there was no doubt that was the sole aim of the company. While the piece also does not get the motivation behind Verizon’s FiOS correct, it also ignores the negative impact of Google pretending to be “a competitive IS ...

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Verizon Wireless: 5G Home Subterfuge

October, 2018

In some ways, Verizon has a worse credibility situation in the short term with its current emphasis on residential applications for 5G, than what happened with FiOS last decade. At least with the latter, it was able to relatively quickly project homes passed with fiber in advance going in lots of metropolitan areas, rather than the next-generation wireless solution becoming live to only a few neighborhoods in each of the four large cities announced. With FiOS, Verizon could argue at a minimum, the potential for unlimited capacity as well as definite, lower operational costs. With 5G Home, not only are the questions concerning a return on investment worse, given much costlier infrastructure spending, but Verizon does not appear to be charging rates commensurate with a truly premium service, while also bending over backwards with perks. Also, Verizon obviously has no plans to stop making m ...

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Apple Story of Shot Across Lumentum Bow

October, 2018

fibeReality understands that a partial reason for the Street hitting Lumentum so hard several days ago was a note from CLSA that Apple is designing its own VCSEL array with the intention of using a foundry to produce the device. While we are not inclined to believe at this time that the report has much merit in terms of any short-term implications for Lumentum, the assertion suggests to us that at a bare minimum, it could be one or a combination of the following: a warning, a punishment for an earlier or unknown faux pas by the large optical components firm, or the prevalent inclination of the customer to engage in “nasty tactics.” Hypothetically, it cannot be ruled out that Apple could bypass Lumentum at any time, and go directly to WIN Semiconductors. We think the foundry firm was by far the most responsible for putting together the ecosystem, which allowed this large smartphone provid ...

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Intel Renews Hyperscale Optic Machination

October, 2018

According to fibeReality’s newest intelligence, we have never been more persuaded that Intel is selling optical components to hyperscale data center operators below cost, while the vendor has very little confidence it can achieve profitability, as a result of sufficient volume. Ever since the supplier had started offering quantity discounts to the space with PSM4 devices (and then later with CWDM4 hardware), we have believed that it has played a major role in bombing pricing, which in due course, led to the devastation of the optics ecosystem. We have also received information that even when Intel was running its Optical Platform Division, before divesting those assets last decade, that it had a clear inclination to treat these sales no better than it would loss leaders. For example, we understand there was irreparable damage to the 40G SFP market, when Intel aggressively undercut the pr ...

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NeoPhotonics: A Rationale for a Resurgence

October, 2018

Ever since the last optical boom in China, it has been easy to be critical about NeoPhotonics concerning limitations for growth in its traditional space with much of it based on a disproportionate amount of overexposure to that country’s marketplace, on the very low prospect of getting acquired (especially at any kind of a premium), and on the lack of a comprehensive diversification strategy. (NeoPhotonics did very briefly bring up “adjacent markets” during its last earnings call.) While all of these factors are clearly related to each other, it is the third one that could provide the supplier with the biggest competitive advantage in the long term. In the short term, fibeReality anticipates that NeoPhotonics will likely be one of only a few US optics companies to substantially benefit from the revival of ZTE, a recovery by the large customer, which this writer predicted (see the comment ...

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Infinera/Coriant: On Capping Installed Base

September, 2018

We have mentioned that a number of operators with a sizeable installed base of either Infinera or Coriant are undeniably re-evaluating their network strategies. Of course, there would be even more of an imperative, if the service providers hit the wrong kind of lottery jackpot, and have gear from both vendors prevalent in their infrastructure. Our first reaction would be to advise them to strongly consider just filling out the remaining capacity of the existing equipment, and move on to another vendor for growth with new systems. However, the reality is that network planners at a high level still have to at least go through the motions of determining the strategic direction of the “new” Infinera because their jobs could be on the line. Yet, while intensive intelligence gathering, from a consulting firm, such as by fibeReality, chiefly concentrating on feedback from customers in the same ...

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Corning and Multimode: Fujikura Linkage

September, 2018

fibeReality has lately been discussing a lot about the collapsed ecosystem in the active optical equipment space, as well as the growing market for MultiMode Fiber (MMF) in the large data centers of the hyperscale players. In the passive fiber sector, there is a thriving ecosystem, with only a limited number of major suppliers globally, including Corning, OFS Fitel, Prysmian Group, and Sumitomo Electric Lightwave, but it is set up around the ubiquitous SingleMode Fiber (SMF) category. The vendors only have so many draw towers, etc., as well as operations to cable up SMF, which is experiencing very high demand, driven a lot by the hyperscalers themselves. In particular, Corning has its capacity in its worldwide facilities aligned to SMF, and in order to ensure it is adequately serving the needs of its customers, including the two that have been the biggest in the world, Verizon (counting ...

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400G: Impulse to View Rate in a Vacuum

September, 2018

At ECOC this week, the aspect that will almost assuredly not come across is that large optical component firms have to be asking themselves whether major development efforts on high-end optical components, especially on the client side, is logical anymore. So, regarding work on FR4, DR4, etc. modules -- why would they not be clobbered on price to the same extent as happened with the QSFP28 on the CWDM devices? Making it even worse is that at least for the next three-years, the customers that need 400GbE will just be the big-four hyperscalers. Only two of them have demonstrated a willingness to make investments, which have been strategic at best, in an environment in which capital is hardly plentiful. A further indication of the slow uptake on the 400G client is that a number of the optical system suppliers are looking for a modification on the use of one of the standards. In adding in th ...

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24 Tough Queries for Vendors/Users at ECOC 2018

September, 2018

Unfortunately, this writer will be unable to be in Rome, as I will be attending a much happier, personal event later in the week. fibeReality thought it might be a good idea to propose some hard-hitting questions that our loyal readers might consider asking suppliers at the annual hype-fest, just to shake things up, if nothing else. Here are 24 suggestions: 1.     To any supplier, associated with COBO, is it not time to move on to co-packaged optics, which although would not be easy to pull off, it would be a more practical means of accomplishing the chip-to-chip concept, if it ever does happen in the foreseeable future? 2.     For Macom, is it not a little disingenuous to say that lasers in your PICs are integrated, since the former cannot be accomplished with silicon photonics, and is the company adequately able to differentiate itself from products offered in a similar 200G/400G annou ...

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CFP2-ACO Modules: Lingering Cash Cow

September, 2018

In fibeReality’s last blog article, "Oclaro: Waiting for the Other Shoe to Drop,” we analyzed some of the probable consequences for the vendor after the closing of the purchase by Lumentum. In this piece, we will concentrate on the future performance of Oclaro’s ACO transceivers, its most successful product family in recent times. Despite the company’s revenues on coherent technology as a whole remaining fairly consistent, there are current challenges on profitability. One prominent analyst on the Street expressed to us the view that post-200G, CFP2-ACO, there is nothing left in the Oclaro story. Before the announcement of the Lumentum purchase, we agreed with this perspective in that there was never a convincing narrative for a second act, and that the plan presented in moving forward was based principally on market hype (unusual for the leadership), as it was all about the earlier prep ...

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Oclaro: Waiting for the Other Shoe to Drop

September, 2018

With Oclaro in a waiting game, as China must provide antitrust regulatory approval for Lumentum’s acquisition, and although fibeReality senses that that some people at the former have moved from disappointment to at least acceptance, others, depending on where they sit in the organization remain pessimistic. For example, individuals on the sales side are nervous about the possibly of being replaced by counterparts at Lumentum. Greg Dougherty, who did a skillful job of pulling Oclaro back from the brink of bankruptcy, when he started in the head position, will apparently not be involved in the daily operations of the combined company. While it is common for there to be reluctance for the CEO of an acquired company to be even put on the board of the firm making the purchase, we wonder if the issue is not a lot deeper, as for example, Lumentum does not seem to be in a hurry to find a new CF ...

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Inphi Could Not Resist Hyperscale Vortex

September, 2018

fibeReality first used the term, “hyperscale vortex” relating to ADVA Optical Networking, as it was one of the examples of foreshadowing of the complete destruction of the optical ecosystem. Although ADVA’s CEO had reservations about getting too involved with the hyperscale data center operators, the vendor eventually succumbed to getting deeper into this quagmire. When it came to Inphi, the allure of joint development and marketing work with Microsoft when the supplier was still an up-and-comer had to be even more overwhelming. In our recent article, “Inphi’s ColorZ: New Buyer Constrictions,” we made the case that the product has fallen way short of expectations of deployment even at Microsoft. While we have tended to admire Inphi as a vendor in the past, from the beginning, anyone listening to its messaging would have received the distinct impression that for distances of 80 kilometers ...

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