Hyperscalers – and Nvidia – overshadowed much of this year’s OFC event in Los Angeles, but Ciena Chief Strategy Officer David Rothenstein thinks traditional network service providers are in a prime position to maintain their central role as intermediaries of the nation’s growing networking needs.

Rothenstein, in an interview with SDxCentral at the event, noted that AI was indeed the big driver of current market dynamics, led by AI-fueled demand from hyperscalers who are “now the ones driving network architectures and the evolution of infrastructure and even the physical infrastructure of optical systems.”

As such, Ciena has worked over the past several years with those hyperscale giants on developing networking equipment that caters to their specific needs, which the vendor then takes to sell to other customer verticals. Rothenstein noted that this is similar to how Ciena had historically worked with traditional telecom operators prior to the hyperscale surge.

But, despite that “fundamental shift,” as Rothenstein described it, those telecom operators remain central to the ecosystem’s connectivity needs and Ciena’s growth opportunities.

“They still make up nearly 50% of our revenues, and they are still going to benefit from scale-across,” Rothenstein said of the opportunity to connect geographically diverse data centers, adding that opportunity will require those operators to upgrade their systems as “their legacy fiber infrastructure will not be sufficient to capture massive projected growth in network traffic.”

Telecom operators are aware of that need, with carrier representatives pleading for help from the broader ecosystem in helping them bolster that network infrastructure.

Rothenstein did note that these operators will need to more warmly embrace AI help to extract the most from their network investments and opportunities.

“I think the bigger challenge for the service providers is, in addition to making sure they're able to capture the demand, is how do they automate, use AI, use agentic AI to automate their software processes to really transform their network operations and get more nimble to compete with the cloud providers,” Rothenstein said, specifically pointing to Lumen Technologies as a provider that is adopting AI to help drive business. “They’re seeing the flow-through benefit over time.”

Conquering component shortages

Rothenstein also boasted about Ciena’s ability to conquer industry wide component shortage concerns, an issue that has resulted in “some new dynamics at play.”

That new dynamic was front-and-center during Ciena’s most recent earnings call where component shortages undercut what was already a record-breaking revenue quarter for the vendor.

On an earnings call with investors, CFO Mark Graff said the company was seeing a “meaningfully higher backlog” that’s swollen by $2 billion in a single quarter to $7 billion, with nearly all new orders now queued for 2027 delivery.

“Our order intake has been incredibly strong over the past 90 days, leading to a new record by a significant margin,” Graff told investors, with Ciena expecting its backlog to continue to grow throughout the year.

The constraint is rooted not in manufacturing but components. Ciena is working to expand its own production capacity, with capital expenditure notably hitting $74 million during its most recent fiscal quarter, roughly two- to three-times its historical quarterly average, Graff said.

The deeper bottleneck sits with component suppliers, with Graff confirming the company was negotiating long-term purchase commitments to secure supply. He was, however, candid that demand will continue to outstrip supply “at least for the next several quarters.”

“We are deeply engaged with component vendors, which is where more of the industry challenges exist, to secure and expand supply, including through responsible long-term purchase commitments,” the CFO added.

“I think that’s really one of our differentiators,” Rothenstein said of Ciena’s component approach, noting the vendor’s vertically integrated portfolio and optimized supply chain. The networking space is also somewhat shielded by most of the current supply chain challenges impacting compute and not so much the critical components that go into networking.

“We learned our lessons from the power management crisis of 2022,” Rothenstein said, referencing the pandemic-related supply-chain crunch that hit many technology vendors, adding that Ciena is working through a “just in time, optimized, efficient supply chain with the degree of redundancy and resiliency to withstand these types of dynamics. We're not where we want to be, but we are firing on all cylinders.”