NSN investing to stay in the game

Ovum“Burn me once, shame on you; burn me twice, shame on me” appears to be the new credo at Nokia Siemens Networks (NSN).
 After being burned when Cisco acquired optical component maker CoreOptics in May 2010, giving Cisco a secure supply of 40G optical modules and leaving NSN with a competitor as a crucial supplier, NSN has taken an aggressive strategy to protect itself by making investments in its supply chain to ensure access to key emerging technologies.
Since the beginning of 2011, the company has made strategic investments in three key component suppliers: Texas Instruments (TI), Skorpios Technologies, and most recently ClariPhy Communications. Each investment involves a different part of the business, but they all have one thing in common: DSP (digital signal processing).
Nokia Siemens and TI unveiled their relationship at Mobile World Congress in February 2011 coincident with the launch of NSN’s Liquid Radio, which uses TI’s wireless base station system-on-chip (SoC) and DSP technology.
Then, in March, NSN announced that it had entered into a strategic development agreement with Skorpios Technologies. Skorpios manufactures integrated opto-electronic modules and subsystems for optical equipment. NSN is using Skorpios’s coherent technology for extended-reach PON applications in its next-generation optical access (NGOA) program.
Most recently, in June 2011 Nokia Siemens announced that it was an investor in start-up transceiver and subsystem vendor ClariPhy’s latest funding round. ClariPhy is a maker of ultra-high-speed mixed-signal processing ICs for optical networks.
The company is developing SoC technology for coherent optical transmission at data rates of 40 gigabits per second (40G), 100G, and beyond. Nokia Siemens is ClariPhy’s largest investor.
Looking beyond 100G requires a stake in critical components
Like many of its peers, Nokia Siemens is convinced that a lot of important innovation is occurring in the component industry, particularly in regards to coherent DSP.
The company feels it needs to own and have access to this intellectual property so it is not locked out by its competitors. NSN’s chief competitors – including Alcatel-Lucent, Ciena, Cisco, Ericsson, Huawei, and Infinera – have already developed coherent DSP capabilities for their optical systems.
Owning intellectual property and acquiring core competency is the chief reason Cisco cited for its acquisition of CoreOptics over a year ago. Nokia Siemens currently uses CoreOptics parts for its 100G solution, which will be generally available in 2H11.
The company’s investment in rival ClariPhy has more to do with what comes next, i.e. 400G or 1T transmission, than with obtaining a second source for 100G. Although NSN has not announced that it is using any of ClariPhy’s technology in its products, the news does give customers a good feeling that the company has a second source should something in its relationship with CoreOptics/Cisco go awry.
Nokia Siemens is not seeking exclusivity with ClariPhy’s technology. ClariPhy also has a non-exclusive strategic partnership with module maker Oclaro. Oclaro supplies transponders to OEMs such as NSN and its competitors.
Alcatel-Lucent and Ciena have gained an early foothold in the blossoming 100G market due mainly to their internally developed coherent capabilities. Nokia Siemens’ forward-looking R&D strategy suggests the company will also be increasing its investments in flexible grid ROADM technologies.
Flexible grid – defined as the ability to adjust channel spectral width to fit the particular bit rate and modulation scheme of individual channels – will be required to support higher-speed 400G and 1T transmission.
As noted in our year-end 2009 report “Telecoms in 2020: Network Infrastructure” we believe hardware is becoming increasingly important for performance, especially in the network core, and thus the trend to nurture a captive source for components is critical to vendors’ success.