While Ciena’s historic record for acquiring companies has left a lot to be desired, its most recent buyout of Packet Design was a shrewd move. In contrast, Infinera, which at quite a late date, ostensibly was forced to pick up a struggling firm with a lot of incumbent roots, despite the continuing insistence by the only PIC-centric supplier that it possessed a leading-edge solution. Conversely, Ciena’s purchase of the Nortel’s assets to save itself was about nine years ago, and it is becoming even clearer to us that our expectation for a while will come to pass that along with Huawei, the two firms are set to end up ultimately dominating the international optical system market, especially on the terrestrial side. Yet, despite Ciena’s strengthening position in the space, the leadership still cannot seem to avoid making remarks that defies credulity.
Verizon’s next-generation metro contract from a few years ago that Ciena and Cisco Systems won, included a lot of packet technology requirements. They ranged from high-density circuit emulation to complete, seamless MPLS with Flex LSP.
Naturally, Cisco already had these capabilities. It has been doing packet MPLS for an extremely long time.
We believe that Ciena felt compelled to progress beyond being just a boutique, layer 2, Carrier Ethernet and MPLS-TP mid-vendor. It wanted to get up into the packet domain/MPLS world, and provide layer 3 VPNs, as well as other new offerings.
Ciena had the option of purchasing an MPLS stack from other companies. Instead, the supplier determined that in order to accomplish this task most credibly, it needed to have that knowledge and capability in-house.
So, in buying Packet Design, Ciena can integrate some of that technology into its regular packet machines, and effectively move up the stack. fibeReality understands the latter has a good team working with the former.
As Ciena grows its packet and software businesses, it allows the supplier to cope with the inevitable ups and downs of being a player in the optical space. We still have doubts as to the extent of SDN penetration into traditional ISPs other than for greenfield applications in the access portion of networks, and we wonder how much longer the company can get away with referring to Blue Planet as being in “a nascent market (in addition, to now claiming that “we were early entrants,” which we find somewhat disingenuous). While we have discussed in the past that it has become increasingly difficult for systems integrators to differentiate themselves, a lot of money will continue to need to be available at Ciena to properly fund R&D in DSP gear and in ROADM devices.
Also, in listening to Ciena’s CEO, Gary Smith, one may get the false idea that the optical sector has not always been cyclical. On the last quarterly conference call, an investment analyst correctly pointed out that “we all know the history in terms of two steps forward, one step back.” Smith responded that he thought it was based on a 2001 perspective, which did not make sense to us because that was after the bubble, and just about everything was headed in a downward direction.
In our opinion, despite an impressive performance, this type of comment hardly does the company a favor. They have been noticeable in the past, including what we found to be at least exaggerated remarks on bandwidth currency, and on price stability.
As always, fibeReality does not recommend any securities, and this writer does not invest in any companies being analyzed by us.
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[written by Mark Lutkowitz]
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