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Avago/Emulex/Broadcom: Storage Target; Impact on Finisar

May, 2015

With the acquisitions of Emulex and Broadcom, Avago Technologies is clearly shifting more of its focus from the less appealing optical components space to the very attractive storage business. Not only does the market size of the latter substantially dwarf that of the former, the storage companies went from way too many players in the 1990s, to an ample state of consolidation – with both hardware drive producers, Seagate and Western Digital, currently dominating in terms of revenue. While this state of affairs may be threatened with media’s changeover to solid-state drives, at least the optic componentry firms had a prominent business model that was well established last decade that they could have adopted. There cannot be a lot of optimism that the ridiculous lack of rationalization in optics will change anytime soon. With capital being provided by large end-users for newcomers, there c ...

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Ciena Probably Overpaying for Cyan

May, 2015

A prima facie case can be made that the $400 million price tag on Cyan is out of line. In effect, Ciena should have problems justifying it is worth at almost half as much as Nortel’s Metro Ethernet Networks business (adjusted for inflation) and about four times Cyan’s revenues in 2014 – in an optical environment in which it has been recently difficult sometimes to command even 1x sales on an acquisition. Also, with the prospects for SDN in the public network space increasingly getting dimmer, the purchase at a premium is even more of a head scratcher. With the exception of the buyouts of the Nortel assets (a necessity to keep revenues up sufficiently) and the pickup of Lightera Networks, which led to the successful CoreDirector (a steal at the 1999 price of a little over $450 million), Ciena has in general not had a good track record on buyouts of companies. Since its founding, the suppl ...

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Would Nokia Sell AlcaLu’s Optical Landline Business?

May, 2015

A few years ago, Nokia decided to unload NSN’s optical networks division to focus more on the wireless sector. Now, with the proposed acquisition of Alcatel-Lucent, it will be entering the fiber optic business once again, only this time taking on a comparatively gigantic piece of the pie. While there would be some potentially attractive aspects of the product line including for backhaul applications, it would not be completely surprising if Nokia were currently thinking about divesting the entire optical segment down the road because the market has only worsened since its sell-off to Marlin Equity Partners. The expected spinoff of the submarine optics portion of the business makes the remaining product line even less desirable because as a general rule, the margins tend to be much higher with subsea because in cases of new construction, customers require a full turnkey job including cabl ...

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400GbE Spectacular Fantasy

April, 2015

At least in fantasy football, the actions are based on activities that genuinely exist in the present world. At a time when the telecom/datacom optical market is arguably as bad as ever, it is unseemly for a relatively large amount of capital to be spent on engineers traipsing around the globe developing standards based on technology that is not real or proven. Using history as a guide, the lion’s share of the individuals attending these meetings will never see 400GbE in volume while they are still on the job. While we complimented Finisar in our last blog article for advocating NRZ, why did it seemingly take anyone on the IEEE P802.3bs 400 GbE Task Force a year to formerly bring up something so fundamental – the advantage of using existing lanes in achieving higher data rates (for example, 4x10G, 4x25G)? It apparently took the same vendor the same amount of time to be the first to prese ...

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Optical PAM-4 Restricted to 500 Meters?

April, 2015

Our company is always inclined to look towards historical precedent for guidance, and electronics have continually been leveraged throughout the years to bail out optics, such as with its imperfections including nonlinearities, as well as with its cost in enabling greater simplification. So, our initial response would be to look in favor towards a solution like DSP-based PAM -4 for that relatively small segment of the data center market, which is gradually moving to higher data rates using single-mode fiber. Nevertheless, although these optics are being advertised to reach as long as two kilometers, it appears that technical restrictions could confine it to only a quarter of that length. The biggest advantage of using the sophisticated electronics in PAM-4 is that it allows for fewer lasers. Consequently, it facilitates the use of a less complicated optical multiplexer. PAM-4 suppliers, ...

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Knocking of Silicon Photonics Now Mainstream

April, 2015

Who would be against the idea of applying Moore’s Law at some time in the future to optical chips in that it would revolutionize the entire cost structure of transporting signals over light? Nevertheless, only a short time ago, there was hardly a peep of public criticism when it came to the obvious shortcomings of silicon photonics for active components with the exception of Finisar being unjustly punished for telling the truth, as well as fibeReality pointing out what was being said behind closed doors at the vast majority of manufacturers. Today, excluding certain individuals in academia, who are unwilling to admit to any negative attributes of Si photonics, it has presently become almost fashionable to openly state the undeniable conclusion expressed by one vendor’s recent response to us: “The only consensus on the technology is that there is no consensus.” In point of fact, Kaiam wil ...

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Convoluted 20/80 Rule in Data Center Optics

April, 2015

Actually, it is probably a lot closer to a 90/10 relationship in which there is unbelievable amount of attention given to high-end optical development spurred on by a small number of mega-Data Center (DC) operators, which may not represent much higher than 10 percent of the total DC infrastructure market. At least the dot-com bubble initially came about with a legitimate bandwidth driver – the Internet. This time we have a cloud bubble based on relatively limited volume being promoted by a tiny minority of people in the industry with a vested interest including from small optical component vendors – of course, in some cases, being funded by those large end-users. The hype surrounds the new cloud model supposedly being a game changer, and that it will result in a ramping up to higher optical speeds quickly in the next few years. There is also the assertion that the different set of econom ...

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Integrated Photonics Clash

March, 2015

Please join us for our panel at OFC 2015 for a change of pace with fewer slides and with a focus on a lively discussion (and lots of audience participation), which will genuinely face the challenges involved in achieving the goal of increased photonic integration. One of the biggest areas of contention between the speakers will concern cost as well as other factors in advocating the use of optics versus pushing for greater utilization of electronics to achieve the desired objective. Also, some conflict will arise over the economics of large and small companies including access to adequate capital. In particular, the panel will address a very significant problem. With both system vendors and little component firms (in some cases, being funded by huge enterprises to obtain the lowest cost devices) cherry picking the most lucrative opportunities, how does that prevent the major players in o ...

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Monetizing Older Networks: An Overreach?

March, 2015

Although one of the most thought-provoking panels at OFC 2015 will be on the monetization of optical networks, which will include seasoned experts who are vigorously involved in building new revenue models, it is not easy to imagine the kind of cultural metamorphosis that would be required for incumbent service providers to change their long-standing, bureaucratic behavior. In addition, while it is only commonsense to switch from a model that requires a lengthy period of time to install a circuit with a long-term commitment to more of a cloud-driven, network-on-demand paradigm, in which files can be loaded for say, a couple hours to be analyzed, we have discussed the very legitimate structural defects that would frighten executives away from moving in such a direction. Nevertheless, maintaining the status quo is also out of the question for these well-established carriers and seeking the ...

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ROADMs Instead of Metro 100G Systems?

March, 2015

At the OFC 2015 conference, one of the most highly respected network engineers in the business from Xtera Communications will be legitimately asking the question on a panel, “What on Earth is a ‘100G Metro System?’” Bill Szeto will be asserting that because 100G currently means a whole wavelength, there is nothing wrong serving the needs with just taking a 100-gig channel off of a ROADM (Reconfigurable Optical Add/Drop Multiplexer). In doing so, it would also take care of the potential problems with stranded capacity that would occur in mesh networks as we outlined in a previous blog article. Bill will also argue that a so-called 100G metro system would provide no additional features/functionality. Also, there would be the avoidance of the issues today, such as with compatibility between different vendors' equipment at that data rate. Obviously, service providers would not want to get lo ...

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Bullish on 850nm VCSELs; Avago Selling VCSEL Components

March, 2015

As we will demonstrate on an OFC 2015 panel, the data center VCSEL market will remain healthy for an extremely long time, especially in terms of steady revenues. The most shocking change is based on recent evidence that Avago Technologies is selling VCSEL components, possibly including as far down the food chain as bare die, to at least one interconnect solutions provider and at the request of a minimum of one very large enterprise. In even reading between the lines of a small portion of the transcript of the latest quarterly report from the vendor, it indicates a move in this direction: "...[W]hen you start talking about 25[G], you’re talking about having to drive short-reach or even longer reach native 25, which makes it very tough to produce laser, VCSELs, laser, so to speak, that does 25 gigabit. We are one of the few guys who can do it. And we happily sold it to guys who do 100 giga ...

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Surviving in a 10G World

February, 2015

Given that the lion’s share of the discussion in telecom forums is about vaporware, it is not surprising that a lot people in the industry would probably be amazed to hear that R&D spending on 10G devices is still happening. While the really compelling drama within suppliers is occurring with mature or even declining market situations, including on 1G and on VCSELs, in which substantial revenue is on the line, the obsession on analyzing the accounts of the various futuristic, sexier solutions can sound repetitive, and at the end of the day, they have a tendency to be quite boring. In contrast, the struggle for 10G transport equipment vendors to survive is a captivating narrative involving a data rate, which will remain a mainstay in public and enterprise networks for a very long time -- in which there is still an overabundance of participants (partially because financing going back to th ...

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Latest Title II Opened: Property Rights Raid

February, 2015

After the extraordinary action of not making its document on applying Title II rules to the Internet before its formal meeting on the matter, resembling the behavior of a repressive regime, the FCC has voted on the order. Yet inexplicably, even an estimate of the timing of the release of the report that could have such a devastating impact on the ISP market has not been provided by the agency. One of the most egregious aspects of this whole regulatory shift is that after 30 years past the original divestiture of AT&T, the former Bell companies are still not allowed full freedom in the ownership and direction of their networks, a lot of which was built after 1984. The chairman of the FCC actually had the gall to describe the process as “one of the most transparent proceedings that this commission has ever run.” He also appeared to be disingenuous in stating that “releasing a rough draft” ...

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Optical Hardware Innovation Permanently

February, 2015

At the OFC 2015 show next month, the Rump Session is entitled, “Is it 'Game Over' for Hardware?” The discussion will be about “[s]ome industry trends like SDN appear[ing] to make optics hardware engineering and innovation irrelevant and shift innovation into software-based network control [while] [o]ther industry trends like [s]ilicon [p]hotonics appear[ing] to create great new opportunities for hardware innovation.” Of course, while around the world, all kinds of fantastic developments in fiber optic gear continually take place in laboratories, the really important focus should be on actual implementation of new solutions in the telecom space, which has historically tended to be driven by events or needs that were unpredictable in nature. Just the specific network requirements of one large carrier can determine the success of a particular solution. In the same way, the decision of a sin ...

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New Title II Will Choke Optical Investment

February, 2015

The logical presumption associated with the madness of the FCC’s planned takeover of the Internet will be that service providers should be expected to cut back on fiber optic network investment to an absolute minimum, at least until litigation in the courts has been completed. It is also reasonable to conclude that the impact on purchasing of equipment by these carriers of net traffic will be even worse than what happened with the Telecommunications Act of 1996 in which the incumbent carriers were forced to unbundle their infrastructure. The expected Title II ruling is more detrimental because it is a demonstration of a federal agency, reflecting the overall plan of the current administration, which is behaving as if it has virtually boundless legal authority over Internet service providers. Up until fairly recently, there was bipartisan support in the US for a more or less of a hands-of ...

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Cyberattacks: Lower Bandwidth Growth Rates?

January, 2015

Going back to 9/11, there began the realization that an attack on data center infrastructure would make a large corporation the most vulnerable – even more than the loss of the leadership. Simply put, it could stop business in the water. It seems that one of the biggest areas of potential exposure to cyberattacks is in the handoff to outside networks, and if there is a substantial shift in enterprises minimizing these interfaces, it would obviously decrease the amount of bandwidth needed for transport by public networks. We know of one Fortune 250 corporation, which has had at least two encounters with cyber hackers in China over the last two years regarding stolen intellectual property. One of the attacks involved Windows 2000 (Microsoft retired and stopped supporting those servers), and so the engineering team moved horizontally across the company to take control of those relevant serv ...

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Another Savior of Data Center MM Fiber?

January, 2015

In addition to the development of longer-distance and higher-speed VCSELs, there is a possibility that in the long term, polymer waveguide material embedded in electronics could also help to extend the life of multimode fiber in data centers. Yet right now, the technology appears to be reminiscent of the use of silicon photonics with active components, but without the hype. As with SI photonics, the concept of these types of waveguides has been discussed for many years with the problem of loss being a major concern, and right now, the vast majority of dialog on the latter can be found almost exclusively in engineering papers and patent applications. An exception has been Dow Corning, which has for a while been making somewhat of a marketing push, such as at trade shows with its short-reach interconnects utilizing “low loss,” silicone-based polymer waveguides. Back in early 2013, both Dow ...

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No Blowback from Neophotonics Pickup

January, 2015

Before the closing of its deal for Emcore’s narrow linewidth tunable laser product line this month, it had been difficult to find any criticism given that Neophotonics bought Santur several years ago. Apparently, there had been some rumblings of a culture clash amongst the personnel with the prior marriage. In fairness, despite a company doing as much due diligence as possible in advance of a purchase, there is no way to really look under the hood until after sale. In addition, the price for Emcore’s devices was only $1.5 million in cash with the rest of the $17.5 million in debt. Emcore’s former solutions appear to be unique with their external cavity lasers, which provide a very narrow linewidth at the 100G data rate. However, at least one major system vendor has indicated its willingness to put up with a certain number of errors in the software, and that it is good enough just to use ...

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Absurdity of Stressing Metro 100G Now

January, 2015

A couple of financial analysts have been touting Ciena as the expected big winner for a future contract for a large 100G metro project at Verizon. While there can be little doubt that the vendor would be part of such a deal, it needs to always be remembered that these announced agreements never compel the service provider to buy one dime from any supplier, and so the actual amount of equipment purchased could be far less than initially indicated. Moreover, the conspicuous absence in the current discussion of Fujitsu, a vitally important metro incumbent vendor to Verizon, strongly points to the service provider buying less than a stellar amount of this gear anytime soon. Above all, current expectations for growth in the total 100G market are nothing to write home about – one market research firm, usually among the bullish crowd in general, is only projecting about a 25% increase in terms ...

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Google and Cars: Same Revenue Stream

December, 2014

There tends to be a lack of a full understanding of the intention behind the bulk, if not all of Google’s investments in new solutions. At the end of the day, they are each about the enablement of, or at the very least, showing the way of increasing the amount of Internet traffic in order for the company to enlarge the size of its principal business – advertising on the web. Google’s work on the self-driving automobile is no different in that to whatever extent a driver can legitimately divert attention while on the road, that person can potentially be spending time on the Net. In comprehending the mentality behind Google’s investments, one can see why it is pushing for the ultimate vision in autonomous automobiles. It is inconceivable that the firm would want to actually be a player in such a heavily regulated and extremely competitive market as well as open itself up to an incredible a ...

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Cisco: Buyer of Potential Finisar-JDSU Combo?

December, 2014

If Finisar purchases JDSU’s CCOP division, would a systems integrator be interested in buying the combination? Unquestionably, there have been rumors in the past that Cisco Systems would buy Finisar, which with CCOP, would make Cisco’s previous component acquisitions pale in comparison in terms of cornering the market. Moreover, the full system supplier has been Finisar’s biggest customer for a long time. There is a school of thought that when Cisco decided to cease having a distinct transport business unit, it was making a statement that optics stopped being an end in itself – it was really a means to an end. While selling optical network gear remains part of its general strategy, its principal purpose is supposedly to tie routers and the server farms as well as offer the backbone for its software. According to this theory, Cisco’s purchases of CoreOptics and Lightwire are more evidence ...

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Finisar Buyout of JDSU’s CCOP Inevitable?

December, 2014

Simply by a process of elimination, it is difficult to foresee any other player besides Finisar being interested in purchasing JDSU’s planned spinoff of its optical components portfolio, Communications and Commercial Optical Products (CCOP). Such a deal would provide Finisar with further diversification in the telecommunications transport space as well as potentially in new business sectors. Also, to whatever extent they presently go head to head with each other, it would eliminate a competitor from engaging in the cutthroat pricing behavior that is so prevalent in the market today. With its heavy focus on data communications, some industry observers have mentioned Avago Technologies as a possible acquirer of those JDSU assets in order to broaden its product line. However, there is a high likelihood that Avago would have a hard time justifying such a takeover after its relatively recent ...

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Data Centers Moving to “Sweat” Shops

December, 2014

What is really happening in the greening of the data center? We are not seeing orders of magnitude reduction of power consumption. We are not seeing the use of cleaner power plants. Evidently, engineers and other individuals working at Data Centers (DCs) will be increasingly making wardrobe changes from light jackets and slacks to shorts and sleeveless shirts. The expectation is that the standard operating mode for many DCs will be as high as 90 degrees Fahrenheit. At least one major components vendor is working on chip sets, which will work more effectively under such conditions and actually, the permitted temperature for a server can normally reach 90°F (although it is usually advocated not to go beyond 77°F). Obviously, in moving in this direction, the cost of cooling a DC can come down substantially. However, what is not as recognizable is the extremely high cost of having all of tha ...

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New M&A Types of Players In Optics

November, 2014

In recent weeks, there has been a flurry of acquisition activity with three optical component companies being purchased by non-traditional kinds of acquirers, particularly players in the short distance, communications market including data centers. These buyers, such as Huber+Suhner and its takeover of Cube Optics, are definitely concerned about an adequate supply of componentry being available. Evidently, even big enterprises with large data centers have the same types of worries as they are also investing in optical device development, as pointed out in a previous blog article. M/A-COM bought BinOptics at the premium price of $230 million (probably four to five times revenue) to ensure adequate access to laser semiconductors. The bottleneck created by Avago Technologies' pickup of CyOptics last year was a significant catalyst. In the past, JDSU and Finisar had a major role in such M&A ...

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AT&T’s Neutrality Reply a Red Herring

November, 2014

While on the surface, it is commendable that a large player such as AT&T is taking on the US government on net neutrality, its response is totally self-serving. The carrier knows that it will make relatively little money in providing fiber to residential customers. Plus, the biggest cause of network congestion does not come from uploads and downloads to and from the home; it is about the interconnection of data centers for high-volume content. Verizon’s concentration with fiber to the home was in areas that had large enterprises nearby. It divested a lot of its other lines that did not fall into this category. Verizon saw an opportunity to disguise aggressively going after the very lucrative business customers from the regulators – and FTTB subsidized FTTH. To this day, lots of people in the industry would prefer to believe Verizon was just crazy to do so much FTTH, especially several ye ...

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