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 vast improvements on its gear resulting from the WaveLogic Ai, such as on its modulators and demodulators, is instrumental in making its equipment best of breed. On the other, the vendor has no problem with its new partners taking advantage of modems, based on the design, to offer a module and a pluggable to even its competitors.
Despite the slowdown in the China space, which could be an indicator of a movement toward extending the internal development of new optical componentry in the country, Ciena is stating that it is confident that it can indirectly penetrate the second largest market in the world. However, given that China is prohibited from selling optical gear on US networks carrying federal government traffic (along with other penalties), it would probably be a safe assumption that regardless of the growth levels in that country, there will be quite a bit of reluctance to help the vendor with increasing its revenues.
On our separate LinkedIn blog at OFC 2017, we said that Ciena’s “[l]eadership apparently has Acacia-envy. It is always about the next quarterly [numbers] for the vendor, and how it will be perceived on the Street, and not as much about the long-term interests of the company.”
We believe that as was the case with other moves it made in the past, that sharing proprietary technology, which arguably makes up the guts of its differentiated systems, is nothing short of reckless. While it will be able to tout the supposed promise of this new distribution scheme during countless quarterly conference calls, there is no rational basis for this decision.
The reluctance on the part of the top leaders historically to preach patience to the Street, which is quite necessary in a highly cyclical market, has led to very detrimental consequences for the firm. Ciena just has to simply advocate the following to investors: “We won! We beat the overwhelming odds as an optical start-up in the mid-1990s. Nobody will get fired for selecting our products. Our most direct competitor in the States, Infinera, is on the ropes. Nokia is looking to sell its submarine business again, and has trouble keeping up with new developments. Cisco Systems seems to be practically invisible in the space. Our only major competitor is Huawei, and the bulk of the US market will be protected for us indefinitely.”
[written by Mark Lutkowitz]