How Three Pure-Play Optical Vendors are Coping with Network Transformation

Last month I laid out a number of points on the network implications of “fog computing”, and now is a good time to take those implications and mix them with vendor positioning and opportunity to judge how well vendors will be able to address the new issues.  There are four classes of vendors to look at, so this will be spread out over a fair interval.  Since I have to start somewhere, I propose to start with the vendors who have the greatest opportunity and risk, which is the optical vendors, and to focus on three “pure-play” vendors, ADVA, Ciena, and Infinera.  While these guys all get classified as “optical” players, they’ve actually taken a very different path toward the future, so let’s first summarize their position and move forward from that.

ADVA is an on-ramp-centric or data/control-plane player with respect to my fog-distributed metro model.  They have a cloud-DCI product that’s targeted not so much at enterprises but at OTT players, cloud providers, and potentially carrier cloud players.  They purchased Overture Networks, and through that deal acquired a strong NFV and orchestration product set as well as carrier Ethernet and vCPE.

Ciena has a long history in the optical space, going all the way back to the SONET era.  Like many of the old-line vendors, they’ve faced transitions before and not always with complete aplomb.  Most recently, they’ve entered the NFV and orchestration space with the acquisition of Cyan and their Blue Planet product and ecosystem.

Infinera was known as a fast-bits player from its inception, and the company enjoyed a boom when the market seemed to be focusing on optical capacity (which has since busted).  They’re the most traditional of all the optical players, having made no specific moves to enter the broader SDN space or to include NFV and orchestration.

As far as stock price goes, the Street has liked ADVA most over the last year, and Infinera the least.  Ciena’s share price has held steady for the last two years, a kind of baseline.  ADVA jumped up about a year ago, and has remained high, and Infinera started a run up early in 2015 but has fallen significantly to below its 2-year-ago price level.  On a scale where 1 is a strong buy and 5 a strong sell (3 a hold), ADVA is rated 2, Ciena 1.9, and Infinera 2.7 (as of the week ending September 2nd).

I’ve rated vendors in terms of strategic influence with their operator buyers, and over the same 2-year period, Ciena has increased its influence by about 30%, ADVA by about 13%, and Infinera has lost 15%.  Much of Ciena’s gains came from the Cyan purchase, though they’d been trending up slowly before that move.  ADVA’s influence has been growing steadily and the gains don’t correlate to any specific event, and Infinera’s influence loss tracked their stock price, which may indicate that a negative stock trend is something a company has to overcome if it’s going to exercise influence on its market’s future.

The strategic influence score is a good place to start my discussion of the three companies.  None of the three come close to matching the traditional equipment vendors like Cisco, Ericsson, Huawei, Juniper, or Nokia.  Even Ciena can muster only about 60% of Juniper’s score, for example, and Juniper is the lowest of the traditional vendor group in terms of strategic influence.  What this means is that no optical vendor really drives strategy for network infrastructure, and that has a profound impact on optical vendor prospects as operators put pressure on their capital budget.

If optical vendors do nothing, then the electrical giants will set the strategic agenda, and will frame both SDN and NFV more in higher-layer terms.  That means optical missions don’t change, SDN and NFV features aren’t critical in optical equipment, and differentiation diminishes over time.  To win, a pure-play optical company has to make sure that they have a seat at the strategy table and can position their assets as a part of an SDN/NFV transformation.

Ciena, the most engaged of the group, has obviously seen the meaning of the SDN and NFV waves, and has concluded that they needed to have a play in both spaces.  Their acquisition of Cyan, whose Blue Planet technology had promise but was under-funded, and their subsequent focus on making Blue Planet real has made them the most SDN/NFV-centric of the three.  However, their positioning is still very conservative relative to the mainstream vendors in networking, and in SDN/NFV.  They could do a lot more to sell their unique value proposition.

ADVA has a more service-focused positioning than the others.  I’ve run into them at Tier Two/Three players where they’re favored for connecting business sites directly with fiber, and their acquisition of Overture Networks gave them a strong carrier Ethernet offering, not to mention an NFV story.  Overture’s NFV orchestration capability was always among the strongest in the industry, but Overture themselves tended to play it as an adjunct to Ethernet services, focusing on vCPE.  ADVA seems to be following that same path, and if that continues then it might face a challenge in developing a strategic optical mission and promoting it to customers.  Like Ciena, they could do more.

Infinera is the hardest of the three players to assess.  They recently announced Xceed Software Suite, which is an open-source SDN controller and two custom applications, elastic bandwidth and optical virtual networks.  The problem is that it’s proved incredibly difficult to add features to the transport layer, for the simple reason that services are supported higher up.  Infinera, in my view, doesn’t move the ball with its offerings.  The fact that they just did their Xceed announcement and exposed SDN features without creating a compelling link to services makes it harder for them to now refine their SDN role and make it better.  The media hates a re-launch.

So it’s fair to say that none of the optical vendors have done a stellar job connecting their SDN/transport features to service evolution.  Ciena arguably has the best higher-level framework to link with services, but ADVA’s Ensemble NFV stuff is very strong and won an award at a mobile show for application to 5G evolution.  Infinera, as I’ve said, has provided an SDN model in transport, but they don’t connect it to higher-layer service processes either with a uniform orchestration approach of their own (ADVA and Ciena have such a capability) or with policy links to service-layer control processes.

The lack of a clear tie between optical deployment and credible service and infrastructure trends worries the Street, even though it’s earnings and not revenue or future technology trends that tend to move stocks.  Ciena, after a decent report, was downgraded by an analyst firm on the basis of “valuation”, which simply means the share price is too high to be justified given credible trends.

There’s no question in my mind that the smartest move an optical vendor could make would be to tie their strategy to metro evolution as driven by 5G rollout.  All of the vendors have at least blown kisses at the 5G through comments on things like the network slicing that’s included in the 5G vision, but none have been really effective at showing how 5G service-layer and control-plane technology would connect to their fiber transport offerings in an especially effective way.  That would involve framing optical SDN as a partner to service SDN and to NFV.

That’s a lot to ask of optical vendors, to be fair, but if you want relevance in a dynamic market you have to expect to carry your own burdens.  In any event, both ADVA and Ciena have taken a leap upward to service orchestration, which provides the easiest way of linking optical transport with higher-layer evolution.  Infinera is behind in this respect; their SDN controller and applications approach isn’t tied tightly enough to metro changes driven by content delivery and 5G, and that’s what the need to be doing.  That doesn’t mean ADVA and Ciena are setting pretty, though.  Both these companies need to do a better job of capitalizing on their assets, and that involves sterling marketing/positioning.  Getting to that has been difficult for all optical vendors, and for NFV aspirants as well.

You can’t make optical transport strategic by postulating that you’ll provision a bunch of users with pure optical service.  Even optical access to Carrier Ethernet isn’t enough.  You have to make agile optics a player in agile metro infrastructure, not just a set of pipes over which agile tunnels are built at the electrical layer.  But direct service coupling to optics isn’t the solution.  You need two symbiotic orchestration processes, one for service-layer and one for transport.  That vision is apparently easier to understand from the top down.

And there are players at the top, with their own designs.  Lurking in the wings here are the network-layer vendors who, like Juniper, have been pushing hard on packet optics from above.  These vendors haven’t made the perfect connection between the two layers either, but they don’t need to justify an independent optical layer so the burden on them is less.  If none of the optical players manages to sing the song right, then packet-from-on-high will win.  If only one gets it right, then that one is going to take a lot of market share.