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Publication: Light Reading
Date: 16th June 2004
Title: Transmode Branches Out
URL: http://www.lightreading.com/document.asp?site=supercomm&doc_id=54537

Sweden's Transmode Systems AB is known as a pioneer in the field of CWDM access equipment, but now it's branching out into a new product area: Sonet/SDH multiservice edge aggregation devices.

Its first product in this field, called the Transmode Service Extender, or TSE, has been announced today. It will be on display at the Supercomm tradeshow next week, although it won't be a working demo. The first release of the product isn't planned until the fourth quarter of this year.

By then, Transmode hopes to have put in place the commercial foundations for the TSE's success - an OEM agreement with one of the incumbent vendors of Sonet/SDH equipment. Michael Crossey, Transmode's VP of marketing and business development, says a deal is under negotiation and an outcome is expected in the coming months.

In many ways, Transmode is following the example of ADVA AG Optical Networking (Frankfurt: ADAG.F), which itself launched a product in this market - the FSP1500 - about a year ago. Like Transmode, ADVA realized that the market for WDM access and metro equipment was only so big and that in order to grow, it needed to branch out into the much bigger potential market for Sonet/SDH equipment.

In ADVA's case, the FSP1500 was designed from the outset to plug a gap in the SDH product portfolio of Siemens Information and Communications Networks Inc., an OEM partner, according to Brian McCann, ADVA's chief marketing and strategy officer. As a result, says McCann, the FSP1500 is selling well - so well, in fact, that ADVA has its hands full dealing with the SDH side of product development and hasn't gotten around to developing the software to launch a Sonet version.

In Transmode's case, the need to branch out is probably even more important than it was for ADVA, because the company has yet to turn a profit.

Transmode is doing well in the CWDM market this year, starting to win contracts from bigger players. Last year it clocked up revenues of between $4 million and $5 million. It's got 18 percent of the European market for CWDM equipment and 6 percent of the global market, according to Crossey.

But the CWDM market isn't big enough and isn't growing fast enough for Transmode to achieve its revenue goals. The market is growing at between 20 percent and 30 percent a year and is crowded with players, according to Crossey, while Transmode is hoping to double its sales in 2004. Its last funding round of $10 million, in October 2003, was awarded on the basis of the company not needing further financing and breaking even by early 2005.

ADVA's McCann says an OEM partnership is critical when selling this type of equipment, because carriers buy complete packages of Sonet/SDH equipment from big vendors: "They don't buy point products." ADVA developed the FSP1500 while talking to Siemens about its requirements, according to McCann, and they identified a gap in Siemens's product portfolio that ADVA could fill. This hasn't happened with ADVA's other major OEM partner, Fujitsu Network Communications Inc. (FNC), which has no equivalent gap, McCann asserts.

It remains to be seen whether Transmode has included a prospective OEM partner in its deliberations over the design of the TSE. Transmode plans to launch Sonet and SDH versions of its box right at the outset, according to Crossey, so the OEM partner could be in Europe or North America. The latest chips support both technologies, so it's just a matter of loading different software for different markets, he says.

On balance, the OEM partner is more likely to be in the SDH market, because of Transmode's greater presence in Europe. Crossey also compares TSE with SDH rather than Sonet products, which suggests that the most likely candidates are Alcatel SA (NYSE: ALA), ECI Telecom Ltd. (Nasdaq/NM: ECIL) or Marconi Corp. plc (Nasdaq: MRCIY).

Product Details
The TSE enables service providers to extend their Sonet or SDH infrastructures into customer sites so they can offer high-bandwidth services over it. The services Transmode has in mind include storage extension, LAN interconnect, transport of studio-quality uncompressed video, and linking data centers.

Transmode's box combines streams of Gigabit Ethernet, Fibre Channel, and other types of storage traffic from client equipment and packs them into STM-16 (2.5 Gbit/s) Sonet/SDH uplinks, which often might feed into a multiservice provisioning platform. The frames can be shunted onto Sonet/SDH infrastructure, or they can be carried directly over fiber, using Transmode's CWDM or DWDM technology.

Transmode says the TSE is similar in size and price to ADVA's FSP1500 and the ONS 15305 from Cisco Systems Inc. (Nasdaq: CSCO) but is more flexible and a lot denser.

The TSE supports up to 24 channels of Gigabit Ethernet, Fibre Channel, Escon, Ficon, or digital video broadcast in a 2 RU (3.5-inch-high) box, compared to eight channels for the ADVA FSP1500. The modular design of the TSE enables carriers to configure any port to handle any protocol and to buy additional capacity and functionality as they need it.

The Transmode box also enables IBM's extended timing reference (ETR) protocol to be supported on a wavelength carrying other traffic. Until now, ETR has needed its own dedicated wavelength, according to Crossey.

Cisco's ONS 15305 is a different kettle of fish. It aggregates traffic from an even smaller box, the ONS 15302, arriving on STM-1 (155 Mbit/s) connections, and also boasts Gigabit Ethernet and Fibre Channel service modules. In addition, it can aggregate traffic from TDM equipment, such as PBXs, coming in on E1 or E3/T3 lines - something the Transmode box won't be able to do initially. An E1/T1 aggregation module is planned, according to Crossey, as is a switch module that would enable the TSE to support multipoint and point-to-point network topologies.

- Peter Heywood, Founding Editor, Light Reading

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