Ciena’s Gary Smith on Software’s Supremacy

On the occasion of his company’s second-quarter earnings call last week, Ciena Corp. President and CEO Gary Smith gave B/OSS Editor in Chief Tim McElligott an exclusive interview in which they discussed Ciena’s intensifying focus on software.

Ciena acquired World Wide Packets in March for approximately $290 million and the company already is paying dividends, figuratively speaking. WWP contributed to Ciena’s earnings this quarter and will play an important role accelerating the company’s software strategy.

Thanks in part to the WWP acquisition, Ciena’s net income rose 83 percent in the quarter to $23.8 million. Revenue overall increased 25 percent to $242.2 million. However, investors, spooked by fears of a slowing economy and disappointed in Ciena’s forecast and plans to invest heavily in research and development — thereby affecting margins — did not reward the company for its performance. Smith said investing in the business during the last downturn was the right thing to do then and he believes it is the right thing to do now.

Billing World: Why is software becoming so important to your business?

Smith: The challenges of our customers are not just about capacity; they’re about how to monetize that capacity. We all know the demand is there for applications and capacity, but the challenge is to deliver it while making a profit. That requires delivering service in a timely way at the right place and at the right time, so we are moving to a software-enabled architecture that allows customers to stop worrying about the need to predict the type and geographic spread of their capacity. You only really get that kind of flexibility through software.

Hardware platforms are important; they have to be efficient, effective, scalable and convergent. But, ultimately, the critical factor is software. Software allows you to take boxes out of the network and provides the intelligence that can provision the right capacity at the right time.

Billing World: Are the software capabilities of World Wide Packets key drivers in this new strategy?

Smith: Particularly attractive about World Wide Packets acquisition was not just their range of platforms, which is great, but also the way they approach their software architecture and the way we can leverage that across the network and integrate it into other things like network management. We can also leverage that to create an operating system across all the platforms with an open architecture and interfaces into various OSS systems. So yes, a lot of the drivers were around the long-term applicability of their software approach.

Billing World: Is network management a key part of the software approach?

Smith: Network and element management are important pieces, but it is more of an overall network architecture approach. You have to be able to manage your elements in an open architecture and any new element has to have the flexibility of that open architecture and give carriers more transparency into the network. We’re putting software-enabled ports on our metro and access platforms that can be configured and reconfigured. They can be used as ATM ports, then migrated to Ethernet or IP just by using software. So it is an intrinsic approach to flexibility on the network.

Billing World: Are you doing your own software development or using partners?

Smith: Both. We have considerable capability onboard now through the acquisitions we have made, the recruitment we have done and additional resources we have added. To ensure we have an open architecture and are interfacing to the OSS and billing, we have to have linkages into all those people. We are partnering to make sure we have all the right interfaces. We are part of the ecosystem now, but really at the cutting edge, particularly around things like Ethernet service provisioning.

I don’t think any one software architecture will rule, therefore you need to work with the major OSS players, billing folks and interrogation folks.

Billing World: How do you monetize software capabilities? Or are they used as a quality differentiator?

Smith: The industry has always been challenged to monetize software. It has always been box-oriented at the core. As we move towards IP and Ethernet, there is a shift in recognition that the value is in the software. That’s a transition that the industry is just beginning to go through. But major carriers around the world will tell you the biggest challenge they have is around their IT systems, so that says it all right there.

Billing World: What advantage does your software angle give you and how long might it last?

Smith: We are a specialized player and not trying to be all things to all people, but we are a leader in this convergence. There aren’t that many players focused on the integration of the software; larger players are more focused on end-to-end portfolios. It’s not easy to pull off. We have a lot of execution challenges in front of us, but we have all the elements to be able put it all together.

This is not a short-term road we are on. It is a strategy we have had for a number of years and are now seeing it come to fruition. We are convinced this kind of approach to help carriers transition from SONET/SDH to IP, in a way that is financially viable and operationally cogent, is really all around the software.

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