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Author: Dan Bieler, Dana Cooperson, Daryl Inniss, David Dunphy
Siemens held an optical networks analyst day in Munich last week. The optical network activities are part of the Fixed Networks Transport division, which will be part of Nokia Siemens Networks, assuming the merger receives regulatory approval.
Comment: Markets experience increasing traffic growth, driven particularly by data back-ups, triple-play, mobile data and QoS. At the same time, flat-rate offerings and the migration towards IP-based solutions exert ongoing pricing pressure. Our research indicates that the majority of telcos now face stagnant or declining revenues in the domestic markets. Cost control at the network layer is becoming a more important means to defend profit margins during the migration towards next-generation networks.
Network capex and opex reduction are therefore moving to the forefront, and optical components are playing a central role in this process. During the analyst day, Belgacom's international carrier services division, BICS, reported that with a Siemens solution it could reduce capex by a factor of 5 to 1, maintenance opex by 4.5 to 1 and housing opex by 1.8 to 1. In more general terms, Siemens expects to offer savings between 30%-40% in capex and 60%-70% in opex through new optical infrastructure components. Whilst additional flexibility and applications that such new components deliver is not doubt enticing, we believe that it is the cost story that triggers the attention by telcos.
Siemens is now more competitive in EMEA in the Multi-reach DWDM segment, thanks to the release of the hiT 7300 platform. Siemens has already scored eight wins in region with this platform since August. The Photonic Bridges acquisition also gives Siemens a more competitive footing on price in the OED segment, since it now has significant engineering expertise based in China, and it will no longer have both itself and an OEM vendor taking margins off the same product sale.
This must be good news, as Siemens's optical group had struggled over the past four years, first as the market declined with the bursting of the telecom bubble then as new competitors like Huawei and old competitors like Alcatel were more successful at taking advantage of resurgent market spending.
Over the period from Q4 2002 to mid-2005, Siemens's optical networks market position deteriorated from fourth to ninth. Since then, Siemens's focus on rebuilding its SDH product line with a wide next-generation portfolio and its multi-reach DWDM portfolio with a more flexible platform has been paying off, with significant gains in market share.
The full strategic position and product portfolio of Nokia Siemens Networks will only emerge once the joint-venture starts operating. The earliest for that is 1 January 2007. However, we have seen many interesting ideas that Siemens will bring to the new entity. The post-Com period is set to be exciting.
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