2012 optical-leadership

I N F O N E T I C S R E S E A R C H S U R V E Y E X C E R P T S

Service Providers Name Top Optical VendorsBy Andrew SchmittPrincipal Analyst, OpticalInfonetics Research

INTRODUCTION 2

TOP TAKEAWAYS 2

SERVICE PROVIDER FAMILIARITY WITH VENDORS 3

Exhibit 1: Service Provider Familiarity with Optical Equipment Vendors 3

SERVICE PROVIDERS NAME TOP VENDORS 4

Exhibit 2: Top Three Equipment Vendors 4

Exhibit 3: Top Three Vendors: Coherent (40G/100G+) Transmission Technology 5

Exhibit 4: Top Three Vendors: OTN Switching Technology 6

Exhibit 5: Top Three Vendors: Optical Control Plane Technology (G-MPLS, ASON) 7

IMPORTANT PRODUCT FEATURES THAT SET VENDORS APART 7

Exhibit 6: Evaluating New Vendors—Important Features 8

EQUIPMENT VENDOR LEADERSHIP BY CATEGORY 8

Exhibit 7: Optical Transmission and Switching Equipment Supplier Leadership 9

BOTTOM LINE 9

METHODOLOGY AND DEMOGRAPHICS 9

2012

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INTRODUCTION

Amidst the noise of marketing lingo and endless positioning, in the end the only thing that matters is what customers perceive and the decisions they make as a result. Infonetics’ annual optical leadership survey is an attempt to cut through the chatter by discovering which optical equipment companies are perceived by service providers to be the leaders, and by understanding service providers’ decision criteria hierarchy.

TOP TAKEAWAYS

• Alcatel-Lucent seized several leadership positions after years of dominance by Ciena, and was the most-cited company when service providers were asked to name overall optical technology leaders and leaders in specific technologies.

• Though Alcatel-Lucent was named most often, Ciena was named as a top-three vendor nearly as often in 40G/100G+ coherent technology and OTN switching, and was equally recognized in optical control plane technology.

• Huawei is in third place in 40G/100G+ coherent technology and is tied for second in OTN switching, but is the second most-frequently named company as an overall leader in optical equipment.

• Infinera is consistently in fourth place behind these three larger vendors in most leadership areas and has the best ratio of “evaluating” versus “installed,” as twice as many respondents are evaluating their systems when compared to those who have installed them.

• Price and total cost of ownership top the list of criteria for selecting new vendors, and R&D investment and financial stability on average are dead last. Though respondents generally agree about the importance of price and cost, their rankings of reliability, financial stability, and R&D investment are across the board.

THE 2012 SURVEY

Each year Infonetics Research surveys service providers for their opinions on which optical vendors are seen as the leaders in a number of categories. This is a summary of some of the results from our September 2012 Optical Equipment Vendor Leadership: Global Service Provider Survey, in which we interviewed 20 service providers globally that represent 28% of 2011 worldwide telecom capex and revenue. 70% of this year’s respondents participated in our 2011 survey as well. This is important to consider when comparing data year over year.

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© INFONETICS RESEARCH, INC. SEPTEMBER 2012

“This year’s results are materially different from last year’s, as Alcatel-Lucent consistently improved its position relative to competitors, particularly in OTN switching and 40/100G coherent technology, while improving its customer perception on pricing.”

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SERVICE PROVIDER FAMILIARITY WITH VENDORS

Though familiarity with a vendor’s offering does not necessarily translate into contract wins, vendors need buyer awareness to be evaluated as potential vendors. Without a degree of familiarity, vendors don’t even get invited to the table. Respondents rated their familiarity with each of a list of optical transmission and switching equipment vendors on a scale of 1 to 7, where 1 is not familiar and 7 is definitely familiar, a measure called aided awareness. The percentage of respondents rating each vendor a 6 or a 7 or definitely familiar, is shown in the exhibit below.

Half or more of respondents are familiar with three optical transmission and switching equipment vendors: Alcatel-Lucent (65%), Huawei (60%), and Ciena (55%), as shown in Exhibit 1. The fragmented nature of the optical equipment business is clearly evident, with this leading cluster of vendors followed by a few niche providers. Geographical specialization by equipment companies as well as success in certain carrier verticals has created a balkanized landscape.

Exhibit 1: Service Provider Familiarity with Optical Equipment Vendors

Source: Infonetics Research, Optical Equipment Vendor Leadership: Global Service Provider Survey, September 2012

© INFONETICS RESEARCH, INC. SEPTEMBER 2012

Percent of Respondents Rating 6 or 7 or “Definitely Familiar”0% 10% 20% 30% 40% 50% 60% 70%

Alcatel-Lucent

Huawei

Nokia Siemens

Ciena

Tellabs

Infinera

ADVA

ECI

Cisco

ZTE

Fujitsu

Ericsson

Networks

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© INFONETICS RESEARCH, INC. SEPTEMBER 2012

SERVICE PROVIDERS NAME TOP VENDORS

In a series of open-ended questions, we asked service providers to name the three leading optical vendors in several categories. This was followed by a fifth open-ended question asking what features service providers consider to be most important when evaluating new vendors.

Alcatel-Lucent, Ciena, Huawei Identified as Leaders in Overall Optical Equipment

After taking the top position for the past two years, Ciena ceded the top spot to Alcatel-Lucent, with 18 of 20 respondents naming them as an industry leader. Ciena, Huawei, and Infinera were named as leaders by roughly the same number of respondents this year and last, but Alcatel-Lucent rose from 78% to 90%. Following these companies are a number of companies named by one respondent (5%) each.

Exhibit 2: Top Three Equipment Vendors

Source: Infonetics Research, Optical Equipment Vendor Leadership: Global Service Provider Survey, September 2012

Alcatel-Lucent Takes Top Spot in 40G/100G Transmission Technology

Coherent technology is a major area of R&D focus and differentiation among equipment and component vendors, and is the focus of our next question, an open-ended one in which respondents named the equipment or component companies they consider to be the three leaders in coherent 40G/100G+ transmission technology.

Percent of Respondents0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Alcatel-Lucent

Ciena

Ericsson

Huawei

Infinera

Tellabs

Fujitsu

Cisco

Nokia Siemens

ZTE

Networks

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© INFONETICS RESEARCH, INC. SEPTEMBER 2012

As with overall optical leadership, after two years in the top spot Alcatel-Lucent was recognized as the top 40/100G vendor. But rather than Alcatel-Lucent rising past a stationary Ciena, Alcatel-Lucent gained and Ciena slipped slightly. Some of this may be accountable to the slightly greater tilt toward EMEA respondents at the expense of North America.

Huawei and Infinera scored about the same as last year, but Cisco vaulted from 11% last year (two respondents) to 30% this year (six respondents)—a substantial gain, particularly considering the greater EMEA response rate this year. This reflects Cisco’s success with the coherent 40/100G Coreoptics acquisition.

Exhibit 3: Top Three Vendors: Coherent (40G/100G+) Transmission Technology

Source: Infonetics Research, Optical Equipment Vendor Leadership: Global Service Provider Survey, September 2012

Alcatel-Lucent Posts Surprisingly Good OTN Switching Results

In a new question this year, we asked respondents to who they consider to be the top three vendors in OTN switching technology.

As with our coherent ratings, Alcatel-Lucent edged out Ciena, who tied with Huawei for second. Huawei and Ciena are well known and respected OTN vendors with the OSN8800 and 5430, respectively, but Alcatel was slow out of the gate relative to these vendors with the upgraded 1830 after the maligned 1870 project. The market appears to view Alcatel-Lucent as a peer to these two companies, which was a surprise.

Percent of Respondents0% 20% 40% 60% 80% 100%

Alcatel-Lucent

Ciena

Infinera

Huawei

Cisco

ZTE

Nokia Siemens

Tellabs

Networks

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© INFONETICS RESEARCH, INC. SEPTEMBER 2012

Infinera also posted respectable results, with seven respondents naming them as a leader. Given their smaller relative size, clearly Infinera has significant mindshare in switching. This is respectable for a company which is commonly thought of as an optical transport innovator. Though the DTN-X is the flagship OTN switch, the DTN had significant switching features that probably shaped carrier perceptions.

Exhibit 4: Top Three Vendors: OTN Switching Technology

Source: Infonetics Research, Optical Equipment Vendor Leadership: Global Service Provider Survey, September 2012

Optical Control Plane Results Mirror OTN Switching Results

Maybe this shouldn’t be too much of a surprise, but vendors that ranked well for optical control plane performed well in OTN switching. Customers evaluating or considering OTN switching are simultaneously looking to upgrade how they manage their networks, and vendors of OTN products recognize this and are making investments in the software to manage and control these new networks.

One possibility is that the management software is considered to be as important as the OTN switching hardware it is designed to control. Decisions about deploying OTN switching may also be gated by a carrier’s ability to transition to a new control plane.

Percent of Respondents0% 10% 20% 30% 40% 50% 60% 70%

Alcatel-Lucent

Ciena

Cisco

Huawei

Infinera

ZTE

Nokia Siemens

Tellabs

Networks

Fujitsu

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© INFONETICS RESEARCH, INC. SEPTEMBER 2012

Exhibit 5: Top Three Vendors: Optical Control Plane Technology (G-MPLS, ASON)

Source: Infonetics Research, Optical Equipment Vendor Leadership: Global Service Provider Survey, September 2012

IMPORTANT PRODUCT FEATURES THAT SET VENDORS APART

After asking service providers to identify the leading vendors in several areas, we wanted to understand what features are most important when they evaluate vendors—the features that typically set them apart. Last year we switched to an open-ended response methodology we felt yielded more interesting and useful data, and we used that approach again. We then tallied the responses in logical groups as listed in the next chart.

As last year, many responses cluster around generalized words such as “features,” “performance,” and “flexibility.” We classified these responses as “performance, flexibility, general features.”

100G features jumped from 17% last year to 25% this year, still pretty low considering the 100G design activity underway. It is surprising how often people simply used the word “scalability”—3 of 10 respondents cited this.

Control plane features were named by only 30% of respondents, down from 61% last year. This is a dramatic shift that we cannot account for—it simply isn’t at the forefront of people’s thoughts this year. L2 features, OTN/ODU switching, and price/cost all dropped from last year as well.

Service and support ranked surprisingly low last year and dropped farther this year. Exactly like last year, only one respondent cited “vendor stability,” in marked contrast to equipment vendors’ comments. We predominantly interviewed network architects, who don’t have much responsibility for supporting products five years down the road—perhaps that accounts for its low showing.

Percent of Respondents0% 10% 20% 30% 40% 50% 60% 70%

Alcatel-Lucent

Ciena

Cisco

Huawei

Infinera

ZTE

Nokia Siemens

Infinera

Networks

Tellabs

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© INFONETICS RESEARCH, INC. SEPTEMBER 2012

Exhibit 6: Evaluating New Vendors—Important Features

Source: Infonetics Research, Optical Equipment Vendor Leadership: Global Service Provider Survey, September 2012

EQUIPMENT VENDOR LEADERSHIP BY CATEGORY

In addition to asking respondents to rank the eight vendor selection criteria in terms of importance, we asked them to name individual leaders for each criterion. This was a prompted question—respondents could choose up to three vendors for each criterion, from a provided list of 12 vendors. The three responses were given in no particular order or ranking. The next table shows the three vendors named the most for each criterion.

Exhibit 7: Optical Transmission and Switching Equipment Supplier Leadership

Criteria Number 1 Number 2 Number 3

Technology Alcatel-Lucent Ciena Infinera

Pricing Huawei ZTE Alcatel-Lucent

Service and support Alcatel-Lucent Ciena Huawei

Product reliability Alcatel-Lucent and Ciena (tie) Huawei

Financial stability Ciena Huawei Cisco

Management tools Alcatel-Lucent Ciena Infinera

R&D investment Ciena Huawei Alcatel-Lucent

Total cost of ownership Huawei Alcatel-Lucent and Ciena (tie)

Percent of Respondents0% 10% 20% 30% 40% 50% 60%

Performance, flexibility,

Price/cost and density

100G features

Control plane and

Scalability

L2 features

ROADM features

Service and support

OTN/ODU switching

general features

network management

features

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© INFONETICS RESEARCH, INC. SEPTEMBER 2012

Leadership ranking key takeaways:

• Overall results are similar to last year’s, with the exception of Alcatel-Lucent taking leadership from Ciena in technology, and improving in pricing.

• Alcatel-Lucent was named as a leader in management tools by four-fifths of respondents and posted a significant gap over all vendors, including a strong second-place showing by Ciena.

• Annual pricing favorites Huawei and ZTE are in the top two again, though Alcatel-Lucent moved up from last year, and last year’s number-three vendor ADVA dropped.

• Infinera posted good results for technology innovation, landing slightly below Alcatel-Lucent and Ciena, closer to them than last year. Infinera is low in financial stability, though the company has a decent balance sheet.

• Cisco posted decent results in technical areas as well as total cost of ownership, and did well (third place) in financial stability.

BOTTOM LINE

Not only are Alcatel-Lucent, Ciena, and Huawei the top three companies in terms of international optical hardware market share, service providers view them as leaders in the industry. But this year’s results are materially different from last year’s, as Alcatel-Lucent consistently improved its position relative to competitors, particularly in OTN switching and 40/100G coherent technology, while improving its customer perception on pricing.

Ciena was in the position of undisputed optical technology leader for the prior two years, so this is a material change. It should also be noted that during 2012, Alcatel-Lucent should out-ship Ciena 2:1 in coherent 100G ports, so product volume supports the change in 100G conclusions. Huawei consistently ranks in the top three except in technology and network management, though it does rank third in nascent optical control plane technology.

Infinera continues a trend of ranking relatively high given its smaller size, and Cisco improved its relative standing, particularly in 100G.

METHODOLOGY AND DEMOGRAPHICS

In July and August of 2012, using online, telephone, and in-person survey methods, we interviewed 20 service providers that represent a statistically significant 28% of 2011 worldwide revenue and capex in our Service Provider Capex, Revenue, and Capex by Equipment Type report. Our sample includes a mix of incumbent (70%), competitive (20%), and independent wireless (10%) telcos, with 50% based in Europe, the Middle East, and Africa (EMEA); 25% in North America; 15% in Asia Pacific; and 10% in Central and Latin America (CALA).

Each service provider interviewed has an optical transport network, and each respondent has detailed knowledge of their companies’ 10G/40G/100G optical transmission and switching equipment, and has influence in planning and making purchase decisions for optical transmission and switching equipment.

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SURVEY AUTHOR AND LEAD ANALYST

Andrew SchmittPrincipal Analyst, OpticalInfonetics Research [email protected] | +1 (408) 583.3393 | twitter.com/aschmitt

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