DWDM Market Opportunities, Strategies, and Forecasts, 2003 to 2008 DWDM. Picture by Susie Eustis MOUNTAINS OF OPPORTUNITY

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1 DWDM Market Opportunities, Strategies, and Forecasts, 2003 to 2008 DWDM Picture by Susie Eustis MOUNTAINS OF OPPORTUNITY WinterGreen Research, Inc. Lexington, Massachusetts

2 CHECK OUT THESE KEY TOPICS DWDM MARKET SHARES DWDM FORECASTS DWDM CARRIER TRENDS Market Segmentation Metro DWDM Line Systems Network Management SUBMARINE DWDM OPTICAL ARCHITECTURES SYSTEMS APPROACH TO DWDM LIGHTING DARK FIBER WAVELENGTHS DWDM APPLICATIONS TUNABLE LASERS LONG HAUL TERRESTRIAL DWDM LINE SYSTEMS FORWARD ERROR CORRECTION TRANSPARENT METRO DWDM EQUIPMENT OPPORTUNITY ABOUNDS OPPORTUNITY ABOUNDS WinterGreen Research, Inc. Lexington, Massachusetts

3 DWDM Market Opportunities, Strategies, and Forecasts, 2003 to 2008 DWDM brings innovative technologies to the broadband market. Platforms are evolving that extend transmission systems into access, supporting the engagement of multiple value added services on DWDM platforms. There is a convergence of transmission and digital loop carrier platform technology. Companies need to have a technology that combines both time-to-market and time-tovolume production. Market advantage is achieved by a sustainable product offering. Metro DWDM represents a major market shift impacting DWDM inventory and products, creating a differentiation between products and a major product advantage for companies with affordable lasers. Market Conditions Economies have slowed worldwide. Telecommunications infrastructure investment has slowed worldwide. Delay in spending for capital equipment relates in part to overcapacity. The telecommunications industry has enormous overcapacity. The Internet continues to have more users and drive more traffic on networks, but the revenue still comes from voice services. DWDM, gigabit routers, terabit routers, and fiber networks have increased the dark fiber capacity in the networks and have created a situation where profitability for service providers depends on utilizing existing plant. Proprietary circuit switches that cost $1 million can be replaced with a $150,000 IBM, Hewlett Packard, or Sun server loaded with call control soft switch software. Wireless communications promise to replace narrowband wireline services. The long distance and metro networks that use DWDM are achieving broadband systems capability. Optical networking is evolving the capability to achieve Networks are evolving all optical systems capability. Capital spending is evolving to remove network bottlenecks and permitting carriers to pursue profitable revenue opportunities. DWDM Growth Opportunities DWDM growth opportunities relate to lighting dark fiber, implementing broadband networks, and creating a platform for value added services delivery. The ability to increase transport capacity is needed universally. High bandwidth is needed to improve productivity and increase supply chain efficiency.

4 Metro systems implementation DWDM GROWTH OPPORTUNITIES New regional markets Lighting dark fiber E-services demand Storage area network SAN market opportunities Value added services demand High bandwidth demand Supply chain efficiency demand Metro markets are shifting as the prices for laser components come down. DWDM Market Size DWDM markets are expected to grow from $3.4 billion in 2002 to $3.6 billion in 2008.

5 Companies Profiled Market Leaders Nortel Networks Alcatel NEC Ciena Lucent Technologies Tellabs Siemens Sorrento Other Market Participants ADVA Optical JDS Uniphase Agilent Technologies Huawei Avici Systems Lightbit Avonex Lumentis Cisco Systems Manticom Networks Corning Marconi ECI Telecom Optical Micro Machines Ericsson PacketLight Fujitsu Optical Transport Solutions Sycamore Networks Hewlett Packard Telect

6 DWDM Market Strategies and Forecasts, REPORT METHODOLOGY THIS IS THE HUNDRED AND THIRTIETH REPORT IN A SERIES OF MARKET RESEARCH REPORTS THAT PROVIDE FORECASTS IN COMMUNICATIONS, TELECOMMUNICATIONS, THE INTERNET, COMPUTER, SOFTWARE, AND TELEPHONE EQUIPMENT. THE PROJECT LEADERS TAKE DIRECT RESPONSIBILITY FOR WRITING AND PREPARING EACH REPORT. THEY HAVE SIGNIFICANT EXPERIENCE PREPARING INDUSTRY STUDIES. FORECASTS ARE BASED ON PRIMARY RESEARCH AND PROPRIETARY DATA BASES. FORECASTS REFLECT ANALYSIS OF THE MARKET TRENDS IN THE SEGMENT AND RELATED SEGMENTS. UNIT AND DOLLAR SHIPMENTS ARE ANALYZED THROUGH CONSIDERATION OF DOLLAR VOLUME OF EACH MARKET PARTICIPATION IN THE SEGMENT. INSTALLED BASE ANALYSIS AND UNIT ANALYSIS IS BASED ON INTERVIEWS AND AN INFORMATION SEARCH. MARKET SHARE ANALYSIS INCLUDES CONVERSATIONS WITH KEY CUSTOMERS OF PRODUCTS, INDUSTRY SEGMENT LEADERS, MARKETING DIRECTORS, DISTRIBUTORS, LEADING MARKET PARTICIPANTS, OPINION LEADERS, AND COMPANIES SEEKING TO DEVELOP MEASURABLE MARKET SHARE. OVER 200 IN DEPTH INTERVIEWS ARE CONDUCTED FOR EACH REPORT WITH A BROAD RANGE OF KEY PARTICIPANTS AND INDUSTRY LEADERS IN THE MARKET SEGMENT. YOU MUST HAVE THIS STUDY

7 DWDM Market Opportunities, Strategies, and Forecasts, 2003 to 2008 Table of Contents DWDM EXECUTIVE SUMMARY DWDM EXECUTIVE SUMMARY DWDM Brings Innovative Technologies To The Broadband Market DWDM Market Shares DWDM Carrier Trends DWDM Market Forecasts Next-Generation DWDM All Optical Transport Platforms ES-1 ES-1 ES-2 ES-4 ES-7 ES-8 DWDM DYNAMICS AND MARKET DESCRIPTION 1. DWDM MARKET DYNAMICS AND MARKET DESCRIPTION DWDM Market Dynamics Wave Division Multiplexing (WDM) DWDM Systems Metro Markets Metro Versus Long-Haul WDM Challenges of Telecommunications Network DWDM Applications Market Conditions More Efficient To Put Together A Telecommunications Network Delay In Spending For Capital Equipment Capital Spending Decreasing Optical Amplifiers Re-Amplify All Of The Channels On A WDM Fiber Implications for Optical Networking Wavelengths Optical Sonet And DWDM Systems Sonet Transparent Metro DWDM Equipment Increase In Data Traffic On The Public Network Existing Public Network Transmission Infrastructure Enabling Ethernet Network Computing Protocols 1-21 DWDM MARKET SHARES AND MARKET FORECASTS 2. DMDW MARKET SHARES AND MARKET FORECASTS DWDM Growth Opportunities DWDM Market Shares DWDM Market Forecasts Long-Haul DWDM Sector Long-Haul DWDM Market Shares Long-Haul DWDM Market Forecasts DWDM Metro DWDM Metro Market Shares 2-19

8 2.6 CWDM Market Shares Metro DWDM and CWDM Market Forecast, Dollars Service Provider Ethernet Technology Metro DWDM and CWDM Market Forecast, Ports Lighting Dark Fiber All-Optical Network Optical Metro Markets Redefining Network Configuration Impact of High Speed Networks DWDM Regional Analysis 2-43 DWDM PRODUCT DESCRIPTIONS 3. DWDM PRODUCT DESCRIPTION Long-Haul Terrestrial DWDM Line Systems Nortel Long-Haul DWDM Optical Networks Alcatel Long-Haul DWDM Network Solution Alcatel Long Haul DWDM High-Performance Features Alcatel 1640 Optical Add/Drop Multiplexer (80/160 channel DWDM System) Alcatel Out-Of-Band Forward Error Correction Advanced Error Detection NEC Long-Haul Dense Wavelength Division Multiplexing (DWDM) System Fujitsu FLASHWAVE Long Haul Fujitsu FLASHWAVE 7700 Long Haul Fujitsu FLASHWAVE 7300 Transponder Fujitsu Self Healing Networks Ciena Long Haul DWDM Corning Terrestrial Long-Haul DWDM L M Ericsson / Marconi Tellabs 7000 Optical Transport ECI Telecom DWDM Lightbit Metro DWDM Line Systems Nortel Metro DWDM Optical Networks Nortel OPTera Metro Portfolio Alcatel Metro DWDM Ciena Metropolitan Networking ADVA ADVA Carrier-Class Infrastructure Secure, High-Speed Private Optical Network Service Ciena MultiWave Metro One Ciena On Line Metro Platform Ciena Lightworks Services Ciena LightWorks Services Approach Cisco Metro Cisco Incorporates Photonics Technology Innovation With The MSTP Strategy Lucent Metro Optical Solutions ECI Telecom LumiNet Medium Range DWDM Optical Networking Solution PacketLight Integrated Metro Optical Products PacketLight Metro DWDM Products NEC DWDM / Tellium Optical Switches Manticom Networks DWDM Metro Cable Industry Transport Solution Redback DWDM 3-56

9 Lumentis Technology Combines DWDM and CWDM Lumentis Technology Eliminates Amplifiers Tellabs 7100 DWDM Next Generation Optical Transport Systems Marconi DWDM Fujitsu FLASHWAVE Submarine DWDM Alcatel Submarine Corning Submarine NEC Repeatered Submarine System NEC R320 Submarine Repeater ECI Telecom Network Management Network Management Software Nortel Network Management Software PacketLight Network Management Products Redback NetOp SmartEdge Ericsson NEM / Marconi Marconi Management System Service ON Fujitsu FLASHWAVE LightGuard Solution Tellabs Management 3-76 DWDM TECHNOLOGY 4. DWDM TECHNOLOGY Optical Architectures Support For Transitioning To An All-Optical Network Gbps DWDM DWDM Facilitates Capacity Expansion and Flexibility DWDM Capacity Expansion Combining Voice And Data DWDM Incremental Growth Unifying Optical Layer Key Characteristics of DWDM Systems Wavelength Upgrades Optical Networking Forward Error Correction Systems Approach to DWDM Ericsson Engine Ciena Optical University DWDM Standards Activities Tunable Lasers 4-17 DWDM COMPANY PROFILES 5. DMDW COMPANY PROFILES ADVA Optical Adva Global Marketing Strategy Adva Solutions Adva Strategic Alliances Adva Regional Focus ADVA Product Positioning ADVA Business Model ADVA Optical Networking Revenues ADVA Coarse Wavelength Division Multiplexing (CWDM) 5-6

10 5.1.9 ADVA Optical Networking ADVA Market Topography ADVA Focus On Storage Network And Ethernet-Based Technology Agilent Technologies Alcatel Alcatel VND Division Markets Digital Loop Carrier (DLC) Multi-Service Access Solutions Fourth Quarter Business Update: Alcatel Participation In Communications Network Equipment Markets Alcatel Metro DWDM Alcatel and Optics Alcatel and Tellabs / Sprint DWDM Metro Equipment Alcatel Fiber Optic Submarine Cable Repair Avici Systems Avici Systems Research And Development Avonex Ciena BT / Ciena Strategic Partnership Ciena / WaveSmith Networks Ciena Revenue Ciena Acquires ONI Systems Cisco Cisco Acquisitions and Investments Cisco Strategic Alliances Corning Corning Low-Loss Optical Fiber Corning Telecommunications Segment ECI Telecom ECI Telecom Revenue ECI Telecom Customers ECI Telecom Next -Generation Intelligent Optical and Transmission Solutions Ericsson Ericsson Partners Ericsson Positioning Ericsson 3G Positioning Ericsson CDMA Ericsson Wi-Fi Ericsson Mobile handsets Ericsson Broadband Access Unit Fibre-To-The-Home Ericsson / Marconi Partnership Fujitsu Optical Transport Solutions Fujitsu DWDM Fujitsu Network Communications Optical Transport Solutions Hewlett Packard Hewlett Packard Positioning Blade Server Positioning Leverages Optical Networks HP Blade Server Partner Program Hewlett Packard / Compaq JDS Uniphase Huawei Huawei Global Operations Huawei ADSL Positioning Lightbit 5-48

11 Lightbit WaveXchange Operating At Speeds Of 10Gb/s And Greater Lightbit Next Generation DWDM Transmission Systems Lucent Technologies Lucent Service Provider Network Positioning Lucent Optical Networking Lucent Service Provider Network Positioning Lucent Technologies Strategic Positioning Business Forces Driving Change For Lucent Lucent Metro Optical Solutions Lucent Digital Loop Carrier Lucent High Density Multi Service Access Platform Lucent AnyMedia Access System Lumentis Lumentis Architecture Lumentis Eliminating Amplifiers Lumentis Performance and flexibility Lumentis Dynamic Networking Lumentis CWDM and DWDM Lumentis Storage market Lumentis Funding Manticom Networks Marconi Marconi Revenue Marconi Customers Marconi Financial Restructuring NEC NEC Solutions (America) NEC USA NEC Long Haul Submarine DWDM Systems NEC Integration Of Computers And Communications NEC Handsets NEC Handset Customers NEC Third Quarter Revenue Of The Fiscal Year Ending March 31, NEC Networks NEC Solutions (America) Nortel Networks Nortel Product Development Nortel Core Business Segments Nortel Optical Networks Nortel Strategic Alliances And Acquisitions Nortel Service Optical Networks Vision Of Framework Nortel Networks Ethernet Over DWDM Nortel Surviving The Downturn Nortel Networks Corporate Strategy Nortel Customers Nortel Product Differentiation Optical Micro-Machines PacketLight PacketLight Networks Access Platform Sycamore Networks Sorrento Sorrento Networks Revenue First Quarter Fiscal

12 Sorrento Customers Sorrento Networks Transport Of Video-On-Demand Services Telect Tellabs Tellabs Customers Tellabs Products Tellabs Financials Tellabs Optical Networking Products Tellabs Next -Gen SDH and Managed Access Systems 5-102

13 List of Tables and Figures DWDM EXECUTIVE SUMMARY Table ES-1 DWDM Growth Opportunities Figure ES-2 Worldwide DWDM Market Shares, 2002 Figure ES-3 Worldwide DWDM Market Shares, Dollars, First Half 2003 Figure ES-4 Worldwide DWDM Market Forecasts, Dollars, ES-2 ES-3 ES-4 ES-8 DWDM MARKET DYNAMICS AND MARKET DESCRIPTION Table DWDM Applications Table DWDM Service Breadth DWDM MARKET SHARES AND MARKET FORECASTS Table DWDM Growth Opportunities Table Market Advantage Achieved by Sustainable Product Offerings Figure Worldwide DWDM Market Shares, 2002 Table DWDM Market Shares, Worldwide, 2002 Figure Worldwide DWDM Market Shares, Dollars, First half, 2003 Table DWDM Market Shares, Worldwide, First Half 2003 Figure Worldwide DWDM Market Forecasts, Dollars, Table Worldwide DWDM Market Forecasts, Dollars, Figure Worldwide Long haul DWDM Market Shares, Dollars, 2002 Table Long haul DWDM Market Shares, Worldwide, 2002 Figure Worldwide Long haul DWDM Market Shares, Dollars, First Half 2003 Table Long haul DWDM Market Shares, Worldwide, First Half 2003 Figure Worldwide Long haul DWDM Market Forecasts, Dollars, Figure Worldwide Metro DWDM Market Shares, Dollars, 2002

14 Table Metro DWDM and CWDM Market Shares, Worldwide, 2002 Figure Worldwide Metro DWDM Market Shares, Dollars, First Half 2003 Table Metro DWDM Market Shares, Worldwide, First Half 2003 Figure Worldwide CWDM Market Shares, Dollars, 2002 Table CWDM Market Shares, Worldwide, 2002 Figure Worldwide CWDM Market Shares, Dollars, First Half 2003 Table CWDM Market Shares, Worldwide, First Half 2003 Figure Worldwide Metro DMDW Market Forecasts, Dollars, Figure Worldwide CWDM Market Forecasts, Dollars, Table Worldwide Metro DWDM and CWDM Market Forecasts, Dollars, Figure Global Long Haul DWDM Market Forecasts, Ports, Figure Global Metro DWDM Market Forecasts, Ports, Figure Global CWDM Market Forecasts, Ports, Figure Global DWDM Market Forecasts, Ports, Table Worldwide DWDM Market Forecasts, Ports, Table Worldwide Metro DWDM and CWDM Market Forecasts, Ports, Table Impact of Optical Switching on IP Transport Speeds Table Worldwide DWDM Market Forecasts, Percent, By Region, Table Worldwide DWDM Market Forecasts, Dollars, By Region, DWDM PRODUCT DESCRIPTIONS Table Nortel Long-Haul DWDM Key Features Table Alcatel Long-Haul DWDM Network Solution Features Table Alcatel Long-Haul DWDM Network Solution Functions Table Alcatel Long Haul DWDM High-Performance Features Table Out-Of-Band Forward Error Correction Advanced Error Detection Wavelength Transport Features

15 Table NEC SpectralWave 160 Features Table NEC SpectralWave 160 Functions Table Fujitsu FLASHWAVE 7700 Dense Wavelength Division Multiplexing (DWDM) Long Haul Functions Table Fujitsu FLASHWAVE 7300 Transponder Features Table ECI Telecom Long Range DWDM Luminet Benefits Table Nortel OPTera Metro Key Features Table Ciena Metropolitan Transport Family Table Ciena LightWorks Architecture Functions Table Cisco Metro DWDM Positioning Table Cisco Metro DWDM Positioning Table Lucent Metro Customer Positioning Table ECI Telecom Medium Range DWDM Luminet Benefits Table NEC DWDM Submarine Transmission Distances Table NEC DWDM Submarine Transmission Key Features Table Nortel Network Management Software Functions Table Redback NetOp SmartEdge Capabilities DWDM TECHNOLOGY Table New Optical Architectures Table DWDM Capacity Expansion Functions Table DWDM Capacity Expansion Features Table Means for Carriers to Integrate the Diverse Technologies Table Systems Approach To DWDM DWDM COMPANY PROFILES Table Alcatel Metro DWDM Positioning Table Alcatel Terrestrial Optical Networking Strategy

16 Table Alcatel Submarine Optical Networking Strategy Table ECI Telecom Products Table HP Ecosystem Of Compatible Blade Server Products Table Business Forces Driving Change Table Lucent Broadband Access Solutions Table Lucent Broadband Digital Loop Carrier Positioning Table Lucent AnyMedia Access System Family of Products Table Nortel Product Development Table Nortel Optical Networks DWDM Competitive Issues

17 ABOUT THE COMPANY WINTERGREEN RESEARCH, FOUNDED IN 1985, PROVIDES STRATEGIC MARKET ASSESSMENTS IN TELECOMMUNICATIONS, COMMUNICATIONS EQUIPMENT, HEALTH CARE, AND ADVANCED COMPUTER TECHNOLOGY. INDUSTRY REPORTS FOCUS ON OPPORTUNITIES THAT WILL EXPAND EXIST ING MARKETS OR DEVELOP MAJOR NEW MARKETS. THE REPORTS ASSESS NEW PRODUCT AND SERVICE POSITIONING STRATEGIES, NEW AND EVOLVING TECHNOLOGIES, AND TECHNOLOGICAL IMPACT ON PRODUCTS, SERVICES, AND MARKETS. MARKET SHARES ARE PROVIDED. LEADING MARKET PARTICIPANTS ARE PROFILED, AND THEIR MARKETING STRATEGIES, ACQUISITIONS, AND STRATEGIC ALLIANCES ARE DISCUSSED. THE PRINCIPALS OF WINTERGREEN RESEARCH HAVE BEEN INVOLVED IN ANALYSIS AND FORECASTING OF INTERNATIONAL BUSINESS OPPORTUNITIES IN TELECOMMUNICATIONS AND ADVANCED COMPUTER TECHNOLOGY MARKETS FOR OVER 30 YEARS. ABOUT THE PRINCIPAL AUTHORS ELLEN T. CURTISS, TECHNICAL DIRECTOR, CO-FOUNDER OF WINTERGREEN RESEARCH, CONDUCTS STRATEGIC AND MARKET ASSESSMENTS IN TECHNOLOGY-BASED INDUSTRIES. PREVIOUSLY SHE WAS A MEMBER OF THE STAFF OF ARTHUR D. LITTLE, INC., FOR 23 YEARS, MOST RECENTLY AS VICE PRESIDENT OF ARTHUR D. LITTLE DECISION RESOURCES, SPECIALIZING IN STRATEGIC PLANNING AND MARKET DEVELOPMENT SERVICES. SHE IS A GRADUATE OF BOSTON UNIVERSITY AND THE PROGRAM FOR MANAGEMENT DEVELOPMENT AT HARVARD GRADUATE SCHOOL OF BUSINESS ADMINISTRATION. SHE IS THE AUTHOR OF RECENT STUDIES ON WORLDWIDE TELECOMMUNICATIONS MARKETS, THE TOP TEN INTERNET EQUIPMENT COMPANIES, THE TOP TEN CONTRACT MANUFACTURING COMPANIES, AND THE TOP TEN TELECOMMUNICATIONS MARKET ANALYSIS AND FORECASTS. SUSAN EUSTIS, PRESIDENT, CO-FOUNDER OF WINTERGREEN RESEARCH, HAS DONE RESEARCH IN COMMUNICATIONS AND COMPUTER MARKETS AND APPLICATIONS. SHE HOLDS SEVERAL PATENTS IN MICROCOMPUTING AND PARALLEL PROCESSING. SHE HAS THE ORIGINAL PATENTS IN ELECTRONIC VOTING MACHINES. SHE HAS NEW PATENT APPLICATIONS IN FORMAT VARYING, MULITPROCESSING, AND ELECTRONIC VOTING. SHE IS THE AUTHOR OF RECENT STUDIES OF THE REGIONAL BELL OPERATING COMPANIES' MARKETING STRATEGIES, INTERNET EQUIPMENT, BIOMETRICS, A STUDY OF INTERNET EQUIPMENT, WORLDWIDE TELECOMMUNICATIONS EQUIPMENT, TOP TEN TELECOMMUNICATIONS, DIGITAL LOOP CARRIER, WEB HOSTING, WEB SERVICES, AND APPLICATION INTEGRATION MARKETS. MS. EUSTIS IS A GRADUATE OF BARNARD COLLEGE.

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