Nortel GM: 'Optical is out of the penalty box.'

November 30, 2005 Ottawa, Ontario -- Nortel recently announced that its optical business has achieved four consecutive quarters of sequential growth, with optical network equipment once again a major contributor to the company's bottom line. Lightwave senior news editor Meghan Fuller spoke with Philippe Morin, general manager of Nortel's optical business, about the company's bullish outlook on the optical industry for 2006 and beyond.

Nov 30th, 2005

November 30, 2005 Ottawa, Ontario -- Nortel recently recently announced that its optical business has achieved four consecutive quarters of sequential growth, with optical network equipment once again a major contributor to the company's bottom line. Lightwave senior news editor Meghan Fuller spoke with Philippe Morin, general manager of Nortel's optical business, about the company's bullish outlook on the optical industry for 2006 and beyond.

Though Nortel has reported four consecutive quarters of growth for its optical business, the most recent quarter was particularly strong, notes Morin. From a revenue perspective, the company registered its best quarter since Q1 2003, when its optical gear generated $317 million.

Nortel no longer reports its optical revenue separately, but Morin says the company's Q3 '05 revenue exceeded that of Q1 '03. "As a business unit, optical networks is profitable again," he asserts. "It's been a good ride in 2005, and we're starting to see real momentum. To use a hockey term, it's great to have the optical market out of the penalty box again."

Morin attributes Nortel's record quarter to strong sales of its metro optical equipment--though Nortel isn't the only vendor selling well in this area; metro DWDM is the fastest growing segment worldwide. According to the Dell'Oro Group (Redwood City, CA), metro DWDM experienced 66% year-over-year growth from the third quarter of 2004 to the third quarter of 2005.

Nortel has seen increased sales of its metro optical gear in two key markets: The carrier market and the enterprise market. Among the carriers, Morin reports strong growth driven by what he calls video content transport. "A lot of our carriers are deploying DSL in the access for triple play," he explains. "The good news is it's driving increased requirements for optical equipment on two platforms: Our metro DWDM platform, the 5000, for customers who prefer this type of technology or architecture, and our MSPP platform, the OME 3000, for customers who prefer a converged platform that can do both packet and legacy services."

The use of optical technology for DSL backhaul is predominantly a North American and European phenomenon, says Morin, who adds that wireless backhaul is picking up as well.

On the enterprise side, Nortel reports strong traction from the financial sector. Many of the company's financial customers are deploying metro DWDM as part of their business continuity/disaster recovery strategy.

In 2006, Morin anticipates much of the same. "What we've seen in the last two years I think are carriers who under-invested in optical while they were trying to penetrate the access piece and take control of the connectivity to the customer," he says. "This had an impact in '05 when they had to really start building their backhaul or optical backbone solution. I still believe that that is going to be the case next year as they continue to deploy more and more wireless or DSL or, for the cable companies, cable modems."

As for the enterprise market, "that's a bit tougher to predict," says Morin, though he expects to sell optical gear into new market verticals, including retail. The largest retail corporations have storage needs similar to those in the financial sector. The health care industry also is a growing market for optical DWDM equipment, he says.

In the meantime, Nortel is riding this new wave of optical growth. Morin reports that Nortel's next-generation multi-service provisioning platform, the OME 6500 MSPP, now is deployed with more than 65 customers worldwide. Its Common Photonic Layer (CPL) and electronic Dispersion Compensating Optics (eDCO) products are also seeing good traction, he says. "The next-generation product line is really starting to get implemented on a global basis," he says, "and we're pretty bullish for 2006."

As the leader of Nortel's optical business, Morin finds the company's recent success particularly rewarding. "The market has gone through such a rollercoaster ride from 2000, when optical represented over 50% of Nortel's revenue, through the downturn, and now the market is growing again," he muses. "We've been able to refocus the business and grow sequentially, make money, and get next-gen products out there. I think that's an important thing for the overall industry to realize," he adds. "The optical market is growing again."

--MF

More in Market Research