Infinera hosted an Insight analyst day on October 6th to highlight its plans now that it has acquired metro equipment player, Transmode. Gazettabyte interviewed Ron Kline, principal analyst, intelligent networks at market research firm, Ovum, who attended the event.
Q. Infinera’s CEO Tom Fallon referred to this period as a once-in-a-decade transition as metro moves from 10 Gig to 100 Gig. The growth is attributed mainly to the uptake of cloud services and he expects this transition to last for a while. Is this Ovum’s take?
Ron Kline, OvumRK: It is a transition but it is more about coherent technology rather than 10 Gig to 100 Gig. Coherent enables that higher-speed change which is required because of the level of bandwidth going on in the metro.
We are going to see metro change from 10 Gig to 100 Gig, much like we saw it change from 2.5 Gig to 10 Gig. Economically, it is going to be more feasible for operators to deploy 100 Gig and get more bang for their buck.
Ten years is always a good number from any transition. If you look at SONET/SDH, it began in the early 1990s and by 2000 was mainstream.
If you look at transitions, you had a ten-year time lag to get from 2.5 Gig to 10 Gig and you had another ten years for the development of 40 Gig, although that was impacted by the optical bubble and the [2008] financial crisis. But when coherent came around, you had a three-year cycle for 100 gigabit. Now you are in the same three-year cycle for 200 and 400 gigabit.
Is 100 Gig the unit of currency? I think all logic tells us it is. But I’m not sure that ends up being the story here.
If you get line systems that are truly open then optical networking becomes commodity-based transponders - the white box phenomenon - then where is the differentiation? It moves into the software realm and that becomes a much more important differentiator.
Infinera’s CEO asserted that technology differentiation has never been more important in this industry. Is this true or only for certain platforms such as for optical networking and core routers?
If you look at Infinera, you would say their chief differentiator is the PIC (photonic integrated circuit) as it has enabled them to do very well. But other players really have not tried it. Huawei does a little but only in the metro and access.
It is true that you need differentiation, particularly for something as specialised as optical networking. The edge has always gone to the company that can innovate quickest. That is how Nortel did it; they were first with 10 gigabit for long haul and dominated the market.
When you look at coherent, the edge has gone to the quickest: Ciena, Alcatel-Lucent, Huawei and to a certain extent Infinera. Then you throw in the PIC and that gives Infinera an edge.
But then, on the flip side, there is this notion of disaggregation. Nobody likes to say it but it is the commoditisation of the technology; that is certainly the way the content providers are going.
If you get line systems that are truly open then optical networking becomes commodity-based transponders - the white box phenomenon - then where is the differentiation? It moves into the software realm and that becomes a much more important differentiator.
I do think differentiation is important; it always is. But I’m not sure how long your advantage is these days.
Infinera argues that the acquisition of Transmode will triple the total available market it can address.
Infinera definitely increases its total available market. They only had an addressable market related to long haul and submarine line terminating equipment. Now this [acquisition of Transmode] really opens the door. They can do metro, access, mobile backhaul; they can do a lot of different things.
We don’t necessarily agree with the numbers, though, it more a doubling of the addressable market.
The rolling annual long-haul backbone global market (3Q 2014 to 2Q 2015) and the submarine line terminating equipment market where they play [pre-Transmode] was $5.2 billion. If you assume the total market of $14.2 billion is addressable then yes it is nearly a tripling but that includes the legacy SONET/SDH and Bandwidth Management segments which are rapidly declining. Nevertheless, Tom’s point is well-taken, adding a further $5.8 billion for the metro and access WDM markets to their total addressable market is significant.
Tom Fallon also said vendor consolidation will continue, and companies will need to have scale because of the very large amounts of R&D needed to drive differentiation. Is scale needed for a greater R&D spend to stay ahead of the competition?
When you respond to an operator’s request-for-proposal, that is where having end-to-end scale helps Infinera; being able to be a one-stop shop for the metro and long haul.
If I’m an operator, I don’t have to get products from several vendors and be the systems integrator.
Infinera announced a new platform for long haul, the XT-500, which is described as a telecom version of its data centre interconnect Cloud Xpress platform. Why do service providers want such a platform, and how does it differ from cloud Xpress?
Infinera’s DTN-X long haul platform is very high capacity and there are applications where you don’t need a such a large platform. That is one application.
The other is where you lease space [to house your equipment]. If I am going to lease space, if I have a box that is 2 RU (rack unit) high and can do 500 gigabit point-to-point and I don’t need any cross-connect, then this smaller shelf size makes a lot of sense. I’m just transporting bandwidth.
Cloud Xpress is a scaled-down product for the metro. The XT-500 is carrier-class, e.g. NEBS [Network Equipment-Building System] compliant and can span long-haul distances.
Infinera has also announced the XTC-2. What is the main purpose of this platform?
The platform is a smaller DTN-X variant to serve smaller regions. For example you can take a 500 gigabit PIC super-channel and slice it up. That enables you to do a hub-and-spoke virtual ring and drop 100 Gig wavelengths at appropriate places. The system uses the new metro PICs introduced in March. At the hub location you use an ePIC that slices up the 500G into individually routable 100G channels and at the hub location, where the XTC-2 is, you use an oPIC-100.
Does the oPIC-100 offer any advantage compared to existing100 Gig optics?
I don’t think it has a huge edge other than the differentiation you get from a PIC. In fact it might be a deterrent: you have to buy it from Infinera. It is also anti-trend, where the trend is pluggables.
But the hub and spoke architecture is innovative and it will be interesting to see what they do with the integration of PIC technology in Transmode’s gear.
Acquiring Transmode provides Infinera with an end-to-end networking portfolio? Does it still lack important elements? For example, Ciena acquired Cyan and gained its Blue Planet SDN software.
Transmode has a lot of different technologies required in the metro: mobile back-haul, synchronisation, they are also working on mobile front-hauling, and their hardware is low power.
Transmode has pretty much everything you need in these smaller platforms. But it is the software piece that they don’t have. Infinera has a strategy that says: we are not going to do this; we are going to be open and others can come in through an interface essentially and run our equipment.
That will certainly work.
But if you take a long view that says that in future technology will be commoditised, then you are in a bad spot because all the value moves to the software and you, as a company, are not investing and driving that software. So, this could be a huge problem going forward.
What are the main challenges Infinera faces?
One challenge, as mentioned, is hardware commoditisation and the issue of software.
Hardware commodity can play in Infinera’s favour. Infinera should have the lowest-cost solution given its integrated solution, so large hardware volumes is good for them. But if pluggable optics is a requirement, then they could be in trouble with this strategy
The other is keeping up with the Joneses.
I think the 500 Gig in 100 Gig channels is now not that exciting. The 500 Gig PIC is not creating as much advantage as it did before. Where is the 1.2 terabit PIC? Where is the next version that drives Infinera forward?
And is it still going to be 100 Gig? They are leading me to believe it won’t just be. Are they going to have a PIC that is 12 channels that are tunable in modulation formats to go from 100 to 200 to 400 Gig.
They need to if they want to stay competitive with everyone else because the market is moving to 200 Gig and 400 Gig. Our figures show that over 2,000 multi-rate (QPSK and 16-QAM) ports have been shipped in the last year (3Q 2014 to 2Q 2015). And now you have 8-QAM coming. Infinera’s PIC is going to have to support this.
Infinera’s edge is the PIC but if you don’t keep progressing the PIC, it is no longer an edge.
These are the challenges facing Infinera and it is not that easy to do these things.