Their new mantra is diversify, partner

Last year’s Top 5 optical systems vendors slid into their positions having recorded sales declines in 2003. Things were more stable in 2004, with vendors exploiting carrier interest in fiber to the premises (FTTP) equipment, multiservice provisioning platforms (MSPPs), and reconfigurable optical add/drop multiplexers (ROADMs) to boost revenue. The vendors who made our list this year did so by strengthening core product lines, diversifying their customer bases, and leveraging key partnerships.

Alcatel once again tops Lightwave’s list of systems vendors on the strength of its recent customer wins, promising partnerships, and stable revenue growth. In the third quarter of 2004, the vendor saw its optical business increase 21% year-over-year, driven by strong sales of its SONET/SDH products, according to recent research from Current Analysis (Sterling, VA). Meanwhile, a new report from Dell’Oro Group (Redwood City, CA) ranks Alcatel as the leading vendor of optical transport equipment in Europe, Middle East, and Africa (EMEA), with 28% of the total market.

Alcatel also made strides in the burgeoning FTTP market last year, earning contracts from the cities of Quincy, FL; Staffordsville and Paducah, KY; and the Fazenda da Grama Condominium community in Brazil, the first FTTU (Fiber-to-the-User) deployment in Latin America. Being on the receiving end of SBC’s $1.7-billion Project Lightspeed contract hasn’t hurt any, either.

So how does Alcatel do it? “It’s everywhere,” contends Dana Cooperson, group and program director of optical networking at RHK (San Francisco). “It plays in all geographies and product segments, with particular geographic strength in EMEA and CALA [Central and Latin America] and product strength in the next generation aggregation segment [MSPPs], which is the single biggest product spending category for optical networking.”

Huawei was our top “companies to watch” last year. Market analysts consistently placed Huawei among the top five optical-networking vendors worldwide in 2004, good enough to vault it into the second spot among our 2005 Top 5 systems vendors.

The company recently announced worldwide sales of $5.58 billion in 2004, a 45% increase over the previous year. Huawei claims it has boosted international sales 117%, jumping from $1.05 billion in 2003 to $2.28 billion last year. In its native China, its sales were up 18% to net $3.3 billion in 2004 versus $2.78 billion the previous year.

Huawei last year made a concerted effort to diversify beyond the Asian market. The company announced several contracts in Latin America; in Europe, the company announced deals with U.K. telecom operator Fibernet and Swedish network service supplier Banverket Telenät.

Huawei is “the vendor all others see in their rearview mirror and in their windshield in the coveted China market,” says Cooperson, who admits that there are some lingering concerns about the company. “The company is way below the market average in the shift of its revenues to next generation products, which can be explained in large part by the late-maturing [optical-network] market in China. The real issue is the company’s lack of financial transparency, which continues to cast a shadow on its results.”

Cisco Systems, our fourth-ranked systems vendor last year, moved up a notch to capture the number three position this year.

According to David Dunphy, principal analyst of optical infrastructure at Current Analysis, Cisco’s fiscal 2004 corporate-wide revenue reached $22.045 billion, of which 55.5% was earned in the Americas, 27.8% in EMEA, 10.1% in Asia-Pacific, and 6.6% in Japan. During the fourth quarter of last year, Cisco experienced an $85-million increase in sales of its optical products on the strength of the ONS 15454 platform.

Cisco continues to enhance its flagship product, adding ROADM capabilities, Ethernet functionalities, and SAN interfaces. The company claims to have more than 1,000 customers for the 15454.

In May, Cisco unveiled its much anticipated CRS-1 carrier routing system, complete with a 40-Gbit/sec/OC-768 interface. Several vendors of 40-Gbit/sec components and systems credit the introduction of the CRS-1 router for enabling high-profile 40-Gbit/sec trials in 2004.

Nortel Networks has only itself to blame for not being higher on our list. Though Dell’Oro Group says Nortel is the leader in the North American optical transport market and RHK names it number two worldwide, the vendor’s recent financial reporting issues preclude it from retaining its second-place ranking from last year.

Nortel announced unaudited revenues of $2.8 billion in the fourth quarter of 2004, 11% of which came from its optical-networking business. The company announced diverse contract wins last year, covering carriers, enterprises, municipalities, and research institutions around the globe. And it unveiled a complete solution set for local governments and municipalities and continued to leverage its strength there.

The vendor also targeted the cable multiple-system-operator (MSO) market in 2004, launching its Common Photonic Layer, a DWDM platform designed to transform and converge networks across service provider, enterprise, and cable MSO markets. Nortel rounded out the year by announcing its first FTTP win with Danish utility company EnergiMidt, leveraging PON technology from OEM partner ECI Telecom.

Fujitsu’s success with the Flashwave product suite has enabled it to squeak past Lucent Technologies as the number five vendor on our Top 5 list, though its hold on this spot may be tenuous. Says Cooperson, “Huawei, Fujitsu, and Lucent have shifted positions over the past several four-quarter periods, as only fractions of a share point and only tens of millions have sometimes separated their positions in a rolling four-quarter market of $9.2 billion [based on third quarter 2004 results].”

Though almost one-fourth of its revenue came from Asia in the first half of last year, Fujitsu has emerged as a key supplier of next generation SONET equipment in North America and counts among its customers all four of the coveted RBOCs. In 2004, the vendor further strengthened its flagship product suite, launching the MSSP version of its Flashwave 4500. The company also earned several new customers for the Flashwave 4000 series and parlayed its OEM partnership with ADVA Optical Networking into a contract with USCarrier Telecom.

“Fujitsu has successfully leveraged partnerships such as with ADVA to deliver a broad portfolio of transport capabilities while completing development of its own metro systems,” notes Dunphy of Current Analysis. “Fujitsu now adds Atrica to that list, giving it an optical Ethernet platform.”

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