Network infrastructure 2014 market outlook: opportunities and threats
February 5, 2014 | By Michael Kennedy
Capacity supply is ahead of demand currently and is likely to remain so as overall traffic demand growth rates are decelerating. Vendors with internal optical component capabilities, including Huawei, Alcatel-Lucent (NYSE: ALU), Ciena (Nasdaq: CIEN) and Infinera (Nasdaq: INFN), will be able to exert some technological leadership over those vendors that must source components from others.
Carrier routing and switching vendors also are facing severe price competition and pressure for large R&D investments. Juniper Networks (NYSE: JNPR), however, is the only top three vendor with carrier routing and switching as a dominant part of its product portfolio. Cisco's (Nasdaq: CSCO) Network Convergence System (NCS), Alcatel-Lucent's Nuage and Juniper's Contrail proactively position the top three in the emerging SDN market and will help them fend off data center equipment vendors' attempts to enter the carrier routing and switching market with a SDN play. Also, Cisco's NCS is a very strong NFV initiative.
Evolution from distributed IP/MPLS control planes to centralized SDN will reduce the price and margins on router hardware. Price and margin erosion, however, is the continuation of an evolutionary process that was underway before SDN. New architectures that minimize Layer 3 routing and consolidate optical and packet functions, especially P-OTS, are a more fundamental long-term threat to the router vendors' carrier routing businesses. This is more threatening to Juniper than Cisco and Alcatel-Lucent. They also have strong P-OTS products. One attractive solution could be a Juniper Ciena combination, which would provide a complementary match of packet and optical strengths and weaknesses.
I've often thought that Juniper would be the best suitor for Ciena -- though these things rarely ever work out that way and it's certainly not a reason to buy CIEN. That's why I was disappointed to see the activist shareholders taking a position in JNPR and demanding spending cuts, greater dividend, etc. JNPR management probably has their hands full with this. The timing for them to make a large acquisition is not good.
Comcast buyout of Time Warner is very good for Ciena. Comcast uses 6500 OTN. Expect that the time warner properties will have 6500 OTN as well. The first technical challenge would be expanding the CRAN network to include the Time Warner headends......that's a lot of headends folks.