Ciena’s acquisition of Nortel’s Metro Ethernet Network (MEN) business unit was big news on Monday, although the piecemeal sale of Nortel’s assets continues today, with an auction of its GSM and GSM-R (rail) wireless business.

In July, Ericsson successfully bid for Nortel’s CDMA and LTE R&D units for $650 million. In September, Nortel picked Avaya’s bid of $900 million for its enterprise business—the European Union blessed the deal last week.

Ciena emerged over the weekend as the winner (against Nokia Siemens Networks) in the auction of Nortel’s optical networking and carrier Ethernet businesses. (Click here for announcement.) The company acquires these assets, bundled in Nortel’s MEN unit, for a bit more than half of MEN’s 2008 revenue of $1.36 billion. In the first half of 2009, MEN generated $556 million. Ciena’s own 3Q revenue was $168 million.

The upshot is that Ciena stands to triple its total annual revenue.

Optical bets

While impacted by the slowdown like everyone else, Nortel’s MEN unit has pressed ahead, despite its pre-sale status.

A year ago, Nortel boasted its 36th and 37th wins for the 40G dual polarization quadrature phase shift keying (DP-QPSK) equipment that it introduced in April 2008. According to Ron Kline, research director for optical networks for Ovum-RHK, Nortel now has more than 53 40G customers.

“DP-QPSK is still an edge for Nortel, although others are catching up,” Kline said.

Kline noted that Nortel’s work in related digital signal processing, analog/digital (AD) conversion, coherent receivers and trans-impedance amplifiers (TIA) are all “difficult” and still create an advantage for MEN, but said that a counter trend was in motion.

“People are beginning to use PM-DPSK (phase modulator differential phase shift keying) which doesn’t go quite as far—about 1,000 km—but has excellent tolerance to CD (chromatic dispersion) and PMD (polarization mode dispersion) and provides a cheaper cost and time to market,” Kline said.

According to a June report from Dell’Oro, Nortel lead the global 40G market with a 41 percent share.

What about 100G?

Another variable in this optical networking market has been the question of how to pace the deployment of 40G and 100G equipment. Observers expect the IEEE 40/100G Ethernet standard to be completed in June 2010.

AT&T and Comcast were both early adopters of 40G, and Comcast has been itching for faster speeds for nearly two years.

In March 2008, Comcast and Nortel trialed a 100G link between Philadelphia and Mclean using a prototype interface on optics that handle both 40G and 100G. For its part, Ciena demonstrated a single-wavelength payload transmission of 100G at the Supercomputing Conference in November 2008, which the company said differed from other approaches that combined two 40G signals with “fillers” to reach 100G or “inversely multiplexed” 10 separate 10G optical signals.

However Ciena and Nortel rationalize its various product lines, demands for increased capacity could lead to a market explosion. Ovum predicts that the 40/100G market will grow from about $500 million in 2009 to $3.5 billion in 2014—with 100G accounting for only 3 percent of the 2014 total.

Shifting focus, advantages

In March Nortel announced a reduction of investment in its Ethernet switch and router products—a market dominated by Cisco, with Juniper and Alcatel-Lucent running 2nd and 3rd place—while aiming to sharpen its focus in packet optical transport.

Ovum’s Kline said Ciena has several current technological advantages, including: its optical convergence switch (OCS) technology, its advanced generalized multiprotocol label switching (GMPLS) control plane software and its multi-rate programmable interfaces (flexiports.)

In early 2008, Ciena acquired World Wide Packets, a supplier of carrier Ethernet switches, for $300 million, some 10x the company’s 2006 revenue.

–Jonathan Tombes

The Daily



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