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MACOM’s Aggrandizement of Optical Space

May, 2017

After recently discussing Acacia Communication’s seemingly compelled retreat to a level further down on the food chain, MACOM Technology Solutions Holdings, which has products that are no higher than that third layer has a tendency to embellish expectations, most notably this month on the future potential of the data communications portion of the optical market. At its Cloud Data Center Forum for Analysts and Investors in Boston, there was an emphasis on “Moore's law pace of innovation,” “the need to be having…terabit discussions today,” and the requirement “to move to a merchant microelectronic semiconductor model.” In examining MACOM, there is also the more practical consideration in that although it provides just about all of the piece-parts that will go into an optical transceiver/module, much of them were obtained through acquisitions, of perhaps varying quality, and so, there may b ...

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Infinera Apparently Won’t Neutralize XTM

May, 2017

After the purchase of Transmode, Infinera threatened to incorporate its PICs into those systems from the Swedish firm, which never seemed to make any sense given any reasonable analysis of the economics. Without saying it directly on its last quarterly conference, it appears fairly clear that the idea has been officially abandoned (although the CFO perhaps did not receive the memo as he continued to talk about the “XTM upgrade” at a later J.P. Morgan Technology, Media and Telecom Conference). From the time the leadership at Infinera initially bent over backwards to make it seem insultingly clear to Transmode that the XTM was going to take a backseat to its internally developed metro products, to the present in which it cannot directly state its intentions with the PICs, are all, in our opinion, part of the ever-growing list of examples demonstrating a lack of self-awareness by the top-le ...

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Acacia’s Narrow Option Down Food Chain

May, 2017

For a while, we have been addressing the matter of what Acacia Communications can do for an encore with its DSP business. Despite Acacia introducing new products, including its CFP2-ACO and -DCO solutions, as well as a larger capacity ASIC, it has nevertheless felt compelled to offer its PIC component part separately, which one may assume could easily result in lower margin generation. Certainly, there are several factors involved in the vendor’s current situation, which have resulted in what appears to be a less than a desirable change in strategy, such as the over-the-top enthusiasm in the industry regarding the impact of Facebook’s Voyager concept on public service providers. Most vitally, the very closed nature of the ultimate decision making on capital expenditures in China results in optical component suppliers outside the country seeming to be fairly close to blind on the actual l ...

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Huawei’s Public Cloud: Impact on Optics

May, 2017

As the slowdown in China continues, there is little hesitation for optical component vendors to blow up the potential for market opportunities, which will hardly be meaningful to their businesses in the short to medium terms. A good example is the large contract signed between Verizon and Corning, which will be for 5G applications, and will only tend to directly benefit those firms supplying the access space. As this rhetoric is being expressed, there does not seem to be much, if any, speculation about the potential for additional optics business resulting from one of the biggest news stories in recent times: Huawei’s intention to take on Amazon and other public cloud service providers. Part of the reason for the lack of attention is the limited number of details being offered by Huawei on its plans, especially on the optical front. The supplier has also stressed that it will work with e ...

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Ciena: Fast and Loose with Its Valuable IP

May, 2017

According to our Clash of Optical Component Vendors & Technologies in Data Center Networks report published several months ago: “Ciena, [like] Nokia, highly prizes its internal technology,” [especially as it relates to critical functionality, such as digital signal processing (DSP), that substantially differentiates its optical hardware from the competition]. Of course, both vendors have been somewhat surprisingly willing to sell piece-parts, such as transponders shelves, separately as part of open line systems at the hyperscale data center operators. Yet, it appears to be a whole other matter to now for Ciena itself to be so cavalier about its recent announcement of providing its critical WaveLogic DSP technology to component manufacturers at a time when it is increasingly difficult to separate from the pack on the full system side of the house. On the one hand, Ciena wants to argue the ...

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Will Xilinx Get Acquired?

May, 2017

Intel has owned Altera for almost a year and a half. Since that purchase, there has been continuous speculation that Xilinx, the other major FPGA player, would be next to get acquired. However, despite Altera recently having a tough run in getting the latest generations of solutions to market in time, which provide greater density, performance, and power advantages, the fact that Xilinx is still independent, so far, is probably not a fluke. While FPGAs generate high margins, there is nothing inherent to the business that will allow it to outgrow the overall semiconductor market significantly in terms of revenues. As a general rule, once a particular volume is achieved in the space, there is movement to ASICs. In addition, Xilinx’s market cap is disproportionately high compared to its pretty much static annual sales over a long period because there has been this expectation of an acquisit ...

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Lumentum and Oclaro: Back to the Future

May, 2017

Followers of our blog on LinkedIn, which received several updates each of the five days at OFC 2017, were able to read the rather profound comment by the Chief Commercial Officer of Oclaro at the “Fireside Chat” of the OIDA Executive Forum Program concerning the importance of sticking “to internal competence, such as it is doing in the 1310nm and 1550nm wavelength space.” Similarly, he pointed out the wisdom of the company’s two major competitors, Lumentum and Finisar, “looking to take advantage of its fabs for greater profitability” in penetrating the 3D-sensing market. In the past, we commented on the risk of moving too far away from [one’s] own knitting. Despite major purchases and mergers by prominent vendors in the past in order to diversify, they have returned to their core competencies. For example, Lumentum, the former JDSU, combined with Acterna, a test and measurement company, ...

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100G PSM4 Pricing at $2/Gig and Lower

March, 2017

At the Rump Session at OFC 2017, the topic for debate will be “Sub $0.25/Gbps Optics; How and When will Fiber Finally Kill Copper Cable Interconnects in the Data Center (DC)?” One of the questions for discussion will be “What happened to the $1/Gbps optics cost target for switch interconnects?” As it turns out, our intelligence gathering indicates that the prices being offered by a couple of vendors on PSM4 are even more aggressive than we indicated in a blog article in May of last year. Purchasers of our Clash of Optical Component Vendors & Technologies in Data Center Networks report have already received our detailed explanation as to Intel’s pricing and actual product strategy with their “silicon photonics,” which points to as low as $190 a unit for a high-volume purchase. We also understand that Luxtera has dropped the price of its PSM4s to $200. We believe that despite any excessive ...

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Finisar: 3D-Sensing Opportunity in Context

March, 2017

As we pointed out in a recent blog post, Finisar’s potential for diversifying its VCSEL business into the smart phone business should not be characterized as “tremendous.” While the impact will certainly be noticeable, there should be ample competition from suppliers, such as Lumentum Holdings, Broadcom, II-VI, and perhaps one or more other players to cut down on its revenue potential. Assuming the relatively high level of competition, we estimate that additional sales per quarter for Finisar would be optimistically no more than $60 million, and we project only a few more points on total gross margin because of the large quantity of other products sold by the firm. One can easily bet that a company like Apple will want to maintain a good number of vendors in order to avoid any disruptions in the supply chain, and to keep pricing of these components as low as possible. We also believe tha ...

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Higher Stakes with Web 2.0 Undersea Apps

March, 2017

One of the most interesting discussions at the OIDA Executive Forum Program will be the panel on “Internet Content Providers Building Out Undersea Networks - What Does This Mean for Everyone Else?” As far as the world is concerned, the answer to the question can hardly be exaggerated as the Internet backbone is vitally important. While in our last blog article we pointed out that just about all of the major hyperscale data center operators have in effect been forced to build out at least major portions of their terrestrial networks, because of the combination of the scarcity and cost of available high-speed circuits, the lack of adequate investment in submarine networks in recent years has resulted in these Web 2.0 companies perhaps having even fewer, if any, options, but to invest hefty amounts of money in wet infrastructure. Raising the stakes even further is that in some cases there a ...

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Google Hates Building All Networks

March, 2017

According to our Clash of Metro 100G Optical Vendors with Shifting Network Paradigm report: “As…the case with several of the…big Web 2.0 data center operators, they were forced to operate their own networks….It is simply not in the core competency range for Google to run a network…. A large service provider, such as Verizon, simply does not have 100-gig everywhere in the US, and even in places in which it has this precious amount of capacity available, it would automatically charge an arm and a leg to a company like Google.” So, if Google detests even operating its own internal network, and after the foreseeable pullback on “Google Fiber” (as well as other previous initiatives, such as in WiFi), why is “Google Access” continuing to get so much attention, including the invitation to a speaker from that department to the OIDA Executive Forum panel on “How Big is the Optical Access Opportun ...

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100G Will Remain Dominant for Decades

March, 2017

The understatement of the first half century involving optics may have come from a Ciena executive at the Deutsche Bank Technology Conference in September 2016: “[W]e think 100-gigabit is probably going to be the currency for some time still. That is a lot of capacity. I think we all get desensitized to it because everybody talks about 100-gigabit.” Over 20 years ago, this writer predicted the following when he was president of Trans-Formation: “Given the limitations on today`s technology, it is likely that the maximum capacity on a commercially available time-division multiplexer will remain at 10 Gbits/sec for at least 10 to 15 years.” While that range turned out to be true, the most revealing occurrence was that in 2014, about 90% of the transport capacity was still at 10G. In addition, the large Web 2.0 operators, which are today either moving or in the process of migrating to 100G, ...

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Infinera and the Age of Narcissism

March, 2017

In early 2012, Forbes published an article called “Why Narcissistic CEOs Kill Their Companies.” While we believe that some of the characteristics described in the article do not necessarily apply to the two principal corporate executives at Infinera, there are at least several that seem to fit one or both to a tee. It also more than appears that some of the prominent analysts on the Street following the firm have to some extent been influenced by the personalities of the top leadership (if they are not possibly suffering from at least a partial narcissistic disorder themselves) in determining the valuation for the supplier right after the last earnings conference call. As we have mentioned in the past, undoubtedly, there has been “arrogance" expressed over the years on the “superiority” of their technology, and that they are “better than others” in the marketplace, which we think has nev ...

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USC Chair Claims It Takes a Village

February, 2017

Reporting from the OASIS6 Conference and Exhibition on Optics and Electro Optics in Tel Aviv, as part of the EPIC delegation to Israel, well-known professor, Alan Wilner, spoke at the opening session. His message was mainly about the US needing to be more strategic about investing in photonics (meaning government spending), and “transcending the individual.” He also pointed to Israel being a prominent of example of the way it supposedly should be accomplished in the States. Yet, as the case with Singapore, Israel has derived a rather disproportionate amount of its technology from relatively large military expenditures. Certainly, there is nothing wrong in the private sector taking advantage of developments that have come about by a country exercising its legitimate role in protecting national security. Conversely, as we have noted in the past, government investment directly in optical te ...

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Major Pitfall in Financing Technology

February, 2017

When venture capitalists, angel investors, and other types of financiers are approached for funding they need to be aware that many corporate managers and engineers (not necessarily with intention) have a tendency to confuse the following three terms, which have definite demarcation lines: 1) technical exploration, 2) technology development, and 3) product development. The levels of capitalization necessary and the associated risk are not only affected by the actual stage of the process, but a lack of sufficient appreciation for avoiding the temptation of prematurely bypassing the second leg in the progression can have disastrous results. Certainly, it can often be clear when a company engages in just a research exercise. The problem is that many start-ups set up shop right away because they are in a hurry to bring out a solution for a given need at the time. While they may get lucky and ...

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Singapore: GlobalFoundries/Coherent/Poet

January, 2017

As a delegate to the EPIC mission to Singapore, this writer was impressed by the entrepreneurial enthusiasm, work ethic, and exceptional hospitality of the people in the country. While I am hardly a fan in general of public-private partnerships or too much of an emphasis on technology development at universities in which the best engineers are not necessarily in the front lines of businesses, which are more inclined to push for technological R&D more pragmatically, the relatively small population of Singapore helps ensure that there is limited separation (as well as more direct cooperation) between the three major entities involved in optical development. The nation is also just about at top of the list in the world regarding economic freedom, which is critical in allowing for thriving businesses. One of the key aspects that tends to get overlooked is despite being a small country, there ...

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Double Standard When It Comes to Verizon

January, 2017

Although during its existence as a corporation, Verizon has made its share of mistakes, there are often contrasting principles at work with some members of the press and certain industry analysts when it comes to the firm, especially in relation to AT&T. While the latter is looked upon more favorably nowadays, its strategy has been based mainly over the years in staying as big as possible for its own sake, including: the quasi-re-incorporation of Ma Bell with four of the seven "RBOCs" (despite taking on a massive number of residential lines, particularly copper that can often be money losers), the purchase of DirecTV (with the unstated rationale of offloading video from capacity-constrained, copper-based modems and creating confusion in the market because of the lack of synergy between the operations), and the announced merger with Time Warner (with no apparent questioning of the wisdom ...

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Inphi/ClariPhy: Solider Acquisition Aspirant

January, 2017

fibeReality believes that the factor that makes Inphi the most attractive as a buyout candidate is its recent purchase of ClariPhy Communications. With PAM4 technology yet to be sold in any kind of volume by any vendor, Inphi can potentially provide the necessary engineering and financial resources to fully develop a high-end coherent DSP to the merchant market that would provide an alternative to Acacia Communications, which has been able to monopolize the space. As we have discussed in the past, the lack of a second supplier makes differentiation highly problematic for those system vendors, which do not internally develop their own DSPs for these applications. Assuming that NEL does not come out with its own version of this kind of processor, which would be a compelling competitive solution, a duopoly situation would also help ensure that any kind of pricing wars would be kept to a min ...

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Ciena Should Buy ADVA

January, 2017

While the ex-Nortel contingent, which has dominated the direction of Ciena in recent years, would almost assuredly be opposed to the idea because it would be viewed as a direct threat to its turf, the supplier would greatly benefit from purchasing ADVA Optical Networking. With the number of DWDM greenfield opportunities being few and far between at the moment, buying additional market share in the optical space would seem to make a lot of sense. In addition, Ciena would be able to leverage its existing relationships with large incumbent service providers, particularly in the US, to make significant penetration with ADVA’s gear, resulting in not only substantially greater revenue, but much higher margins for the German supplier. Most importantly, we believe that the top leadership at Ciena, which has had a propensity to adopt the philosophy of its latest major acquisition, would greatly b ...

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Huawei May Hit Optics Component Space with Both Barrels

December, 2016

fibeReality believes that Huawei Technologies is striving to develop coherent optics and optical switching components, as well as potentially other types of new devices further down the food chain with the intent of going head-to-head across the world with major competitors in the market, including Finisar, Lumentum Holdings, and Oclaro. It seems that a logical assumption can be made that Huawei will follow the money in terms of prioritizing on particular technology. As we have recently discussed, the temptation for Huawei may get to be irresistible, particularly in its home country, in which massive networking buildouts will evidently continue indefinitely. With state control over the economy, there is always the possibility that it may be decided without any notice to substantially cut back or even halt purchases of optical equipment in China for a while. Yet, the major means of the co ...

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Metro 100G “Heresy”

December, 2016

In a 2015 post discussing an OFC presentation of a well-known engineer in the business, titled “ROADMs Instead of Metro 100G Systems?”, the response from a technologist was, “Very interesting view, some may cry heresy.” fibeReality has been consistently rather bearish on public network deployment of metro 100G gear, including an earlier article: “Absurdity of Stressing Metro 100G Now,” posted in January 2015. During this month, we pointed to Cisco Systems’ silence on the matter as well as on our daily update page, noting Ciena stressing “the blur into both the convergence of long-haul and metro.” Although within the ill-advised endorsements of an optical supercycle, there is still a tendency to mention as one of the major contributing factors, high-end deployments of metro gear at service providers, the evidence continues to accumulate that the projections by some analysts concerning fut ...

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Optical “Supercycle” Farce

December, 2016

In one our recent daily updates, we pointed out: “How can the [optical supercycle] term be used when one of the biggest vendors, Ciena, is only expecting single digit growth in fiscal 2017?” Also, the supplier evidently felt compelled to bend over backwards, and at an unknowable price, to report a record order of backlogs. With the exception of Chinese system vendors, the booming business mainly applies to component companies supplying them. Therefore, an article about three months ago was incorrect with its title: “A dormant tech sector is suddenly surging like it’s 1999.” Obviously, certain analysts on the Street have been pushing the exaggerated characterization for their own purposes, with our favorite that it is "a bona fide optical supercycle." Although Infinera has been struggling from in our opinion, principally managerial incompetence, certainly it would be performing much bette ...

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Finisar Execs Should Get Out Now

December, 2016

While the CEO of Finisar has been associated with the company for over 25 years, the average time that the rest of the executive management team has been in the optical components space is around 18 years. Undoubtedly, they have to understand how terribly unique their situation has become after years of mounting obstacles that have made its business quite unattractive in the recent past. The combination of the Street inexplicably driving up the valuation of a single company, Acacia Communications, to extremely unjustified levels, which positively affected other vendors in the market, along with the exploding demand for componentry in only one country, China, could not have been anticipated. It could be said with a high level of confidence that such a confluence of events will never happen again. Although we believe that Finisar still has room to somewhat improve its financial position in ...

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Top 10 Enigmas at Infinera’s Analyst Day

November, 2016

Our initial thoughts on Insight Infinera 2016, as outlined on our daily updates page over a week ago, was partially that “time will unlikely be a friend [to the vendor] as questions over long-term survivability are apt to become more pronounced.” We also stated that “[t]he only edge that we have been aware of over the years has been the ease of turn-up.” Actually, in having all of the DWDM channels built in on a card, such an advantage would be the bare minimum expected. At least the vendor made an attempt to clear up one of our questions in our last blog post on Infinera showing trans-oceanic growth (when it is not a full turnkey vendor), by stating it is about trends across the board. Overall, we found the long presentation to be at least somewhat delusional with extensive development continuing on its PIC approach (that might even require moving on to a different technology than Indiu ...

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Xtera’s New CFO May be Its Only Hope

November, 2016

Joe Chinnici was unceremoniously let go by Ciena, as the ex-Nortel executives at the company evidently advocated replacing him. In complying to the Sarbanes-Oxley requirements, there were initial glitches in those new rules, and deals were being held up – he apparently became a scapegoat. Along with the CTO, he was an important check against the Nortel coup. Now Chinnici has taken on the major challenge of turning around Xtera Communications, which will hardly be an easy task. If the very competent executive is successful, it would be one of the most remarkable accomplishments in the history of the optical space. Toward the end of last year, we wrote an article called, “Xtera IPO an Act of Desperation?” While it could still be debated whether the vendor was in a frantic state to exit, it certainly was very anxious to have another round of funding. Given that it had been around for so lon ...

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