Alan Weissberger Optical Networking

NSN Exits Optical Network Business; Who will be the last optical network vendor(s) standing?

Nokia Siemens Networks (NSN) is selling its optical networking business unit to private investment firm Marlin Equity Partners, a Los Angeles-based private investment firm with over $1bn of capital under management.  The new company intends to operate as “an industry leader in the fragmented optical networking sector.”   This  transaction is another step in the transformation of NSN into a “mobile broadband specialist,” the company said.

The two companies didn’t announce any financial details of the deal, which will result in the Optical Networks business unit becoming an independent company headquartered in Munich, Germany, according to a statement from NSN.   As a result of this transaction, up to 1,900 employees – mainly in Germany, Portugal and China – are expected to transfer to the new company in line with applicable local legal requirements. The transaction is expected to close in the first quarter of 2013.

NSN’s optical networking unit sold DWDM (dense wavelength-division multiplexing) equipment, used in operator backbone networks. Its competition includes Alcatel-Lucent, Ciena,  Huawei, and (to a lesser extent) Cisco Systems.

“During 2012 Nokia Siemens Networks has made tremendous progress in the transformation of our company to being the world’s mobile broadband specialist. Our strategic focus on our core markets has enabled us to concentrate our energy and investment in areas such as LTE where we have strengthened our global leadership position,” said Rajeev Suri, chief executive officer at Nokia Siemens Networks. “This transaction builds on that momentum and aims to provide a new home for the Optical Networks business with the focus, resources and strategic flexibility to address the opportunities in the optical market.”

This move comes a few months after Ericsson sold its fiber optic access business unit to Calix, including the Ericsson EDA 1500 GPON solution and its complementary ONT portfolio.  Here is the press release announcing that transaction.

Ericsson had acquired the fiber access product line in 2007  from start-up Entrisphere for a rumored price of $290M.  How much did they get from Calix?  In response to a question on the conference call to discuss that sale, the response was “not material.”

AW Comment:

These transactions are a complete reversal from the optical equipment mania of 1999-2000 when start-up optical switch, access, metro and tera-bit router companies were being acquired for billions of dollars.  Some of them had no sales and others didn’t even have a working prototype.  At the time, I was amazed how the Optical Internetworking Forum (OIF) had become “a playground for optical network start-ups,” with upwards of 100 new names attending OIF technical meetings.

Going forward, it appears only two network equipment vendors will have a complete line of wireless and wire-line/optical products – Huawei and Alcatel-Lucent.  The optical network market can be divided into access (primarily GPON), metro, and long haul.  For sure Calix will be a stronger player in the optical access market now.  For metro and long haul, we wonder if the new NSN spin-out will be able to compete with Huawei, Alcatel-Lucent and Ciena, which each offer a broader line of products.

Author Alan Weissberger

By Alan Weissberger

Alan Weissberger is a renowned researcher in the telecommunications field. Having consulted for telcos, equipment manufacturers, semiconductor companies, large end users, venture capitalists and market research firms, we are fortunate to have his critical eye examining new technologies.

14 replies on “NSN Exits Optical Network Business; Who will be the last optical network vendor(s) standing?”

Ken, Thanks for your comment.

A very important before and after type of contrast should be evident from this article.

From 1998 till about 2000 (when the optical bubble burst), VCs were falling all over themselves to invest in optical equipment start-ups that had a credible business plan- one that assumed carriers would build out their optical networks to commercial buildings.

But now, and in the past few years, there are no optical equipment start-ups being funded by VCs or even angel investors! Even though AT&T and and other carriers announce they are (finally) building out FTTP to multi-tenant buildings! For example, AT&T said it plans to fiber connect 1M commercial buildings in coming years.
With an uncertain market characterized by low profit margins and long exit times to realize a ROI, VCs won’t touch optical networking start-ups which have mostly disappeared and may be extinct!

I remember hearing that Verizon’s massive FIOS build was going to be a major shot in the arm. Has Verizon’s decision to slow down FIOS deployment been a factor in these divestitures?

Stu, that’s an interesting question. I suspect it would have little influence on the NSN divestiture, since FiOS was mostly about the fiber to the premise in the last mile and I don’t believe NSN was a supplier to that effort. Of course, that doesn’t account for what may have gone on inside the company as far as thinking that they might be a vendor for particular portions of the FiOS build and then not getting contracts.

NSN was rumored to be a supplier to AT&T U-Verse FTTN, but Alcatel remained as AT&T’s top U-Verse vendor & NSN didn’t get any piece of that.

I also think part of it was lingering customer service reputation problems affecting the sign-up rates Customers remember!

Agree with Alan’s take! Second half on 1990s was insane and irreconcilable. Senior industry people were completely out of touch with the reality. We repeatedly heard proclamations like “Bandwidth will soon be free” discouraging almost any innovation in access networks. This was at a time when ADSL had just started to be deployed and most of us were struggling with voice band modems. Optical bust was inevitable. All optical deployments (including FiOS) have been incremental at best.

Nokia Siemens Networks continues to shrink. It will sell its Business Support Systems unit to Canada’s Redknee Solutions for $19.6 million in cash. Redknee, a telecom software and services firm, will inherit about 1,200 NSN employees as well as clients, supplier contracts, patents and fixed assets.

NSN is no longer a mainstream network equipment maker as it increasingly focuses on mobile broadband services. That leaves only Huawei and Alcatel Lucent as the only complete wireline + wireless network equipment vendors.

Peter, I think NSN’s strategy is one of survival. To avoid bankruptcy and an even greater loss for their two parent companies they must sell of all “non core” assets, which means everything except 2G/3G/4G wireless. NSN has been recognized as the #2 LTE vendor behind mkt leader Ericsson. They will likely try to maintain that position. However, LTE is comparatively a relatively small market. The real action continues to be in upgrades from 2G to 3G and in enhancing 3G service. NSN evidently thinks they can participate in that market as well. Everything else, including managed services is likely to be sold.
Here’s another journalist’s opinion on NSN after their eventful week of asset sales:

“As little I remember” (Robert Frisch)
i) In 1996 or so, Siemens sold its optical fiber business to Pirelli (look at the tires of your car 😉 – a step that made Alcatel happy;
ii) In 2004 or so, Mr. Neubürger, then CFO of Siemens, declared Siemens to be too inert to react with properly speed to such fast customer markets as telecommunication – why he was not treated properly?
iii) The initial executive board of NSN was occupied with 6 (six) members stemming from Nokia and 1 (one) member stemming from Siemens – is anybody surprised by the following unfriendly overtaking?
iv) End of 2011, NSN publicitly announced to discontinue the support of of prepaid services and related software. Consequently, the corresponding customers stood apart and stopped novel orders or cooperation. This resembles the manipulations by Esser & Co. who obtained dozens of millions of € for representing Mannesmann such as being appealing to Vodafone, doesn’t it?
v) Therefore, is it really surprising that most current employees of NSN are happy to leave NSN?
vi) Suppose you are working for a global company, the boss of which announces to cut working places everywhere, but offers new ones in India: What would you do? (BTW: I’m not against our colleagues in India, not at all! I do have seen Indian peoples working hard, very hard! The fact, that some of them – like software engineers – need special treatment, is another topic, though not unimportant one, I agree 🙂

I would still bet on Optical Networking for some considerable amount of time..although it is a million dollar question whether MPLS would be able to match the performance characteristics of ON(E.g: switching under 50 ms). The GMPLS, kind of comes close, but do not know on the installed numbers in the field..At the end of the day, I think we are still not ready for core GigE backbone, when it comes to inter-operation of networks..

10% of the population is out of work and being supported by the American people. people have no money or less money to buy things. No one has more money to implement new technology unless it is cheaper

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