LUCENT LEAPS TO NO. 2 SPOT IN METRO DWDM SHOWDOWN

When Lucent Technologies released its second-quarter 2003 financial results, the overriding message was that the vendor missed its target due to a European wireless equipment customer that didn't pay up. What did not surface until recently was the fact that during the same quarter, Lucent jumped from sixth place to second place in the market for metro dense wavelength-division multiplexing gear.

Lucent recorded an estimated 287% increase in metro DWDM revenue in the second quarter, leapfrogging rivals such as Ciena and Adva Optical to claim the second largest share of the market behind Nortel Networks, according to a recent Dell'Oro Group report. Industry observers cautioned that the DWDM market is uneven and small ($134 million in second-quarter revenues worldwide), so market share can fluctuate from quarter to quarter. But a Dell'Oro spokeswoman said Lucent rose gradually from its ninth-place position in early 2002 and that Nortel leads the market consistently.

In April 2002, Verizon Communications picked Lucent's Metropolis Enhanced Optical Networking (EON) system as its metro DWDM product of choice. At the NFOEC conference last week, Lucent executives initially attributed the company's surge in the rankings to that contract. When pressed further, however, the executives said Lucent's rise in market share status was due to a mix of customers. Lucent has named four other EON customers so far, all outside the United States. The most recent was South Korean carrier Dacom.

If Verizon bought a lot of metro DWDM gear during the second quarter, Lucent shouldn't expect it to last, said Sam Greenholtz, a consultant with Telecom Pragmatics.

“At one time, metro DWDM was sort of Verizon's game plan, but with somewhat of a glut in fiber optics and the come-uppance of [coarse wave division multiplexing], DWDM is beginning to take a back seat to everything,” he said. Verizon representatives were not available for comment.

Like Nortel, Ciena's share of the metro DWDM market shrank in the second quarter as its revenue in the space grew only 3%. The low number highlights the quarterly fluctuations in the sector, Greenholtz said. Ciena, for example, sold a lot of metro DWDM gear in the first quarter but most of it went to Mexican carrier Telmex. Ciena executives viewed the data in a broader context.

“The metro DWDM market is disappearing,” said Francois Locoh-Donou, Ciena's vice president of marketing. “It's being replaced with multiservice platforms that combine WDM, Sonet and data. That's our focus.”

According to Probe Group, metro WDM (which would include both DWDM and CWDM) accounted for just 9.2% of the metro optical infrastructure market in 2002. Metro Sonet/SDH formed 68.3% of the market, and the remaining 22.5% went to digital cross-connects.

A KMI Research report projects 11% compound annual growth for DWDM in general through 2007, trailing the average 17% growth of next-generation Sonet/SDH during the same period. Though the growth projections don't break down into metro and long-haul DWDM, KMI said metro DWDM accounted for $850 million of the $2.5 billion DWDM market in 2002, or about 34%.

Executives at Nortel Networks, touting a newly extended range of metro DWDM gear at NFOEC, dismissed Lucent as a long-haul player that has yet to master the metro.

“I hope Lucent reinvents itself,” said Marco Pagani, Nortel's president of optical Ethernet. “Competition is good for the industry. And metro is where the action is. I just don't know that [Lucent] has made the transition.”