As I’ve been pointing out, the optical players have been going after the data-center market with a fervor. And the emergence of 100G optical as a data-center connectivity technology has been a major contributor.
Just as an example, Cyan (Nasdaq:CYNI) recently announced an open, 100 Gbit/s optical proudct taking aim at “webscale” data centers with an open architecture. In December, Infinera announced CloudXpress, its product targeting data-center connectivity with 100 1-Gbit/s optical. Ciena (Nasdaq:CIEN) has unveiled some new chipsets with cloud-friendly features.
Yesterday, several financial analysts reported that Ciena and Cisco (Nasdaq:CSCO) would be selling 100 Gbit/s technology into Verizon (NYSE:VZ) for its new metro network. Verizon later officially announced the deal.
With all of this happening around the Optical Fiber Conference (OFC) show in Los Angeles this week, it has led Simon Leopold, Managing Director of Raymond James, to ask what’s hotter? 100G or Metro? Or both? Or neither?
“Our unscientific survey of investors indicated greater interest in metro 100G; whereas, the vendors we asked thought data center trends were of greater interest,” wrote Leopold in his morning investment note. We think the data center is a more meaningful growth driver for now.”
Leopold, who was one of the analysts projecting the Ciena and Cisco win at Verizon, estimates that $200M is at stake in that deal. This deal and others revolve around the need for more bandwidth in the metro and the need to connect data centers. These were recurring themes at OFC, wrote Leopold.
“The recurring themes were datacenter adoption of optics and the 100G transition to metro from long haul. In general, we continue to see the markets as too fragmented with too many players; however, the sector appears to be tracking towards improvement.”
Another question Leopold brings up is whether the new “optical excitement” being a zero-sum game. In other words, maybe all the new spending in data centers and webscale is just going to replace spending in legacy networks. And the Webscale players are talking about building their own equipment.
As reported earlier this week, consolidation will be needed to boost profit margins in this new rush for 100G technologies. Leopold said he remained unconvinced that optical players were ready to make deals.
“Vendors agree that consolidation benefits all, but we are not convinced that Finisar will reach an agreement to acquire JDSU’s spin-out, Lumentum,” wrote Leopold in today’s note.