Ciena’s Clash with Cannibalization at Webscale Operators: A New Report

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Ciena is at an important inflection point involving its future strategy. Its biggest, near-term struggle right now seems to be in adequately responding to the demands of the hyperscale data center operators for a 400-gig ZR device, the total world market fibeReality projects to grow to $175 million in 2023. Is there a possibility that the supplier remains primarily focused on its latest generation of equipment mainly involving 800G, 600G, etc.? Conversely, does it indeed make a dramatic shift with a full commitment towards pluggable coherent optics? Most ominously, future types of modules along with white boxes taking advantage of them could lead to substantial cannibalization of not only Ciena’s offerings, but every full optical system player in this space.

Otherwise, despite some notable, very costly missteps earlier in its existence, Ciena at least for now, is at its strongest competitive position ever as an optical system house. Bolstered by its dominant position in the United States, especially with the hyperscalers and large incumbent ISPs, it has become the world leader outside of China. While this transport space is quite harsh, as maintaining adequate hardware differentiation can be difficult, the vendor should be able to exist indefinitely. There is a set of circumstance, which would result in Ciena remaining in its dominant place, primarily as a full-system supplier moving forward.

fibeReality published a new study today. It is based on exhaustive intelligence gathering last month, heavily emphasizing the all-important demand side — the customers. The following issues are addressed: 400ZR market size and projections by application out to 2024; expected 400ZR price declines by app; Ciena’s corporate strategy options in optics; competitive analysis of major competitors; long-term outlook of large cloud providers and other users; special focus on Microsoft’s network plans, as original ZR driver; cloud operators’ demands for successive generations of gear; enhanced risk of significant, lengthy network failures; power requirements at higher data rates; Ciena’s possible M&A activity; bandwidth demand challenges with Covid-19 virus; decision-making structure at Ciena and potential changes; QSFP-DD vs OSFP; 400ZR+ and its complexity; impact of white boxes; future potential for 100ZR; prospects for 800-gig ZR; and Google’s campus coherent concept.

In addition to a heavy focus on Microsoft, the report examines the plans of Google, Facebook, Amazon, Alibaba, as well as other large operators and users. Besides Ciena, we evaluate ADVA, Cisco Systems/Acacia Communications, Fujitsu, Huawei Technologies, Infinera, InnoLight, Juniper Networks, Lumentum Holdings, Molex, NEL, NeoPhotonics, Nokia Networks, II-VI, as well as other vendors.