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Lumentum Owns Basis of Oclaro Takedown

March, 2019

At OFC 2019, Lumentum Holdings finally acknowledged the principal rationale for purchasing Oclaro, by announcing the divestiture of the data communications transceiver (TX) product line of the latter (last September, it was certainly clear to fibeReality that such “Oclaro” equipment was going to take a hit), and by stating in extremely direct terms at the Investor Session, the destructive pricing environment at the hyperscale data center operators (this overall motivation for the buyout we expressed a year ago, referring to an ecosystem collapse). Incredibly, as recently as late, last month (at the Morgan Stanley Technology, Media & Telecom Conference), Lumentum asserted that at the time of the announcement of the buyout: “We didn't know how bad or how challenging the [the data communications transceiver market] would be.” In fibeReality’s opinion, Lumentum also figured it...

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On Cisco’s Rationalization for Luxtera Buy

March, 2019

At the OFC 2019 Media/Analyst Luncheon – “Hot Topics in Data Center Optics: Emerging Standards/MSAs, Silicon Photonics, 400G and Beyond,” Bill Gartner, Vice President/GM Optical Systems and Optics Group, Cisco Systems, mentioned the idea of “placing bets” because his company cannot get involved with everything in the space. In response to this point, this writer brought up that many people in the industry were scratching their heads about the Luxtera purchase, pointed out that there had been practically no public comments on silicon photonics technology by him over the last few years (other than apparently critical remarks), and sought out whether it would be used as a loss leader in the same way that Intel appears to be employing its sales of optical components. Gartner replied that the acquisition was not driven by the PSM4 product line, that Luxtera had an interesting...

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“Fireworks” at OFC SDN Controller Panel

March, 2019

Please be sure you hang around long enough next week at OFC 2019 to watch a unique, exciting debate during the panel of “How Centralized should Centralized SDN Control and Orchestration be?” There will be no wasted time on speaker introductions, and the number of slides per participant will be kept down to a very bare minimum. The bulk of the session will be used for an interactive disputation, including ample time for members of the audience to join in the fray, asking questions and making arguments, reflecting their own points of view. In some cases, we will be getting into subject matter complementing the various combinations of monolithic, modular, and hybrid approaches being advocated by the participants. Some of the other intriguing and provocative aspects that will be addressed include: determining the extent to which ISPs have been moving to a single, consolidated...

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CenturyLink/Zayo: Verizon’s Forewarning

February, 2019

While Verizon’s first-mover position with 5G wireless in the US will offer many advantages, including a locality just simply wanting to avoid the negative aesthetics of having another operator in the same location, it also adopts the role of the guinea pig in taking on many unknown technical challenges, leading to higher, unanticipated expenditures. Although there is ample speculation about CenturyLink purchasing at least a portion of Zayo (which fibeReality believes will happen), along with our intelligence pointing to a possible CenturyLink-T-Mobile-Sprint merger, we would assert that in hindsight, at least some Verizon executives may have tried to argue harder for pulling the trigger on purchasing the fiber provider itself. To be fair, Verizon had to be especially concerned about regulatory matters, as it has a historic reputation for at least trying to control as many assets as...

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Ciena and Ericsson: The Virtualized Merger

January, 2019

The “Nortelization” process at Ciena started several years before the supplier actually bought Nortel Networks’ assets. Former Nortel executives slowly worked their way into the Ciena organizational woodwork, and it became kind of a soundless coup. By the time, the trigger was pulled on the acquisition, mainly out of financial desperation, the mindset of, as well as control by, the Canadian executives, were already well-entrenched at the company. Naturally, they have been even more careful about protecting their turf in recent times, as there has been a tremendous effort of getting human assets from Ericsson, making sure they become indoctrinated into the “Nortel” way of thinking, and so, whether the optical vendor formally merges with the Swedish company, there would be no threat to the status quo at the “American” firm. In a future buyout, there would also be the...

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ADVA: Next Optics Dynamo in NA

January, 2019

The combination of the apparent penetration of ADVA Optical Networking into the incumbent ISP transport gear marketplace, along with the anticipation of the number of sizable players continuing to dwindle, appears to make the company well-positioned to become a principal optical system vendor in North America. The supplier’s confidence in reaching the next level on the continent is evidently quite high, as fibeReality hears that it is currently constructing a $3 million lab in Ottawa. (Part of this effort is that ADVA will increasingly become a prominent leader of the 5G infrastructure play, including beyond just optics considerations.) So, the idea that it is in “the middle of a nice pipeline build in North America” as expressed on its Q3 2018 earnings call, could turn out to be an extraordinary understatement. Obviously, like fibeReality, ADVA is betting that both Nokia Networks...

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Verizon Retains “Oath” of Fealty to Itself

January, 2019

The “Oath” division of the most inventive, incumbent ISP on the planet, including the design of a long-haul network, which is as “future-proof” as humanly possible, and standing by itself in its construction of the FiOS network (without any direct government support), is now called the Verizon Media Group. While the service provider has made notable missteps in the past, including initially projecting very low on the cost of a key component of 5G wireless, understandable in its role as a pioneer, the inability of so many people analyzing the corporation to give it the benefit of the doubt, is simply astounding. When a very tiny minority of consultants, including this writer, explained the reasonable rationale behind Verizon pulling the trigger on FiOS last decade, as it did not prove-in on a first-cost basis, a good number of critics preferred the narrative that the operator was...

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Arris + CommScope = Another M&A Decoy

January, 2019

An industry observer is expected to believe that CommScope, which was on the record at Investor Day, several months before the announcement of the merger with Arris Group, that it would only consider a relatively modest acquisition (and highlighted its previous buyout: “a very small connectivity company called, Cable Exchange,”) would so quickly change its mind, ostensibly because of future market opportunities, especially 5G (while commenting last month at the Barclays Global Technology, Media and Telecommunications Conference, “[W]e're really in the infancy of all of this, trying to figure out where it's going….”). Such an individual is also supposed to be persuaded that “[a] primarily…passive product infrastructure provider,” which around a couple of years ago divested its RFoG and EPON businesses, suddenly decided to change its corporate ethos radically by becoming...

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Muse CenturyLink-T-Mobile-Sprint Combo

January, 2019

Why would Sunit Patel, who has been the loyal enabler of Level 3, particularly with his expertise in debt refinancing, now part of CenturyLink, be in such a rush to leave his prestigious position, along with overseeing a tremendous opportunity for growth, to join a pending merger of two wireless operators, which is destined to struggle over capital and resources for an unlimited amount of time? How could CenturyLink fail to make him an offer he could not refuse, so to speak? If Deutsche Telekom, a majority shareholder of T-Mobile, has not exactly been as willing to finance projects outside of Europe as inside the continent, why would Patel expect it do so now for an operator in the US, which will be hard-pressed to become even a niche player in 5G, at best, and a company that could conceivably declare bankruptcy, at worst? Why would he find it so exciting just to work on merging with...

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Cisco/Luxtera: Loss Leader and Defensive Move

January, 2019

After the initial news report that Cisco Systems was working on an agreement to acquire Luxtera, most people in the industry, who had a least an adequate technological knowledge of Silicon Photonics (SiPh), and were familiar with the system house’s history with the solution, could not makes sense of such a deal. In fibeReality’s opinion, it was about a combination of motivations. First, Cisco wants to make its hyperscale data center customers happy, particularly Microsoft, with adequate financial backing of a CWDM4 player, which was probably making little to no money at best, and as the large optical component firms have been running from the space with the breakdown of the ecosystem. As a result, in paying such a high premium, Cisco’s move will stand out even more as a loss leader in the same way it does for Intel. Secondly, it is a defensive strategy for the former in that the...

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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...

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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...

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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...

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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...

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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)...

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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...

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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...

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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)...

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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...

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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...

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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...

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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...

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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...

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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...

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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...

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