MRV Communications - advancing optical transport and Carrier Ethernet in-house
July 5, 2010		Email this page

Q&A with Zeev Draer, Vice President of Marketing

Introduction

MRV Communications, headquartered in Chatsworth, California, is a global supplier of optical communication systems for carrier and enterprise networks as well as specialised aerospace, defence and other communications networks.

MRV operates R&D centres in North America, Europe and Asia, along with 50 support centres and 21 sales offices around the world.

Q: What is MRV's focus?

MRV's Optical Communications Systems division is focused on optical. Our activities are 90% optical and this is how we're continuing to position ourselves.

Regarding optical we have two areas of focus. One is Carrier Ethernet access, mainly based on Ethernet over fibre.

The second is the optical transport WDM that supports both dense and coarse wavelength division multiplexing technology, which includes simplified optical transport solutions such as media conversion, signal repeating and fibre-optimisation access solutions.

Q: How is MRV's revenue split between Carrier Ethernet and 'basic' transport products?

Revenue from MRV's Optical Communications Systems division is substantially all derived from Carrier Ethernet access and optical transport and WDM systems.

One reason MRV is successful is that it has been offering Carrier Ethernet access solutions for over ten years. The company was one of the first vendors to deliver Carrier Ethernet platforms suitable for large-scale Tier 1 projects, long before Carrier Ethernet technology was standardised and widely accepted.

This capability has been an advantage for MRV against other vendors in the optical space as the majority of these did not offer Carrier Ethernet solutions and have begun to provide such products only quite recently.

Q: Do you see MRV's split between transport and Carrier Ethernet changing over the next two or three years?

We see the percentage of volume of sales going up in both fields. We're seeing more and more Ethernet over fibre - many of our line cards that use Carrier Ethernet are based on our design of Carrier Ethernet and we're putting the same through the WDM transport, which becomes the packet optical.

Now we're asking ourselves what it is worth in terms of revenue - how do we define the revenues between the packet optical, WDM and Carrier Ethernet.

Q: Do you think Tier 1 and 2 carriers now accept the 'Carrier Ethernet' story, based on progress in the development and adoption of the standards?

I believe so, yes. Everything is about timing, market forces and technological maturity. In Europe, many major service providers are mature and deploying Carrier Ethernet, while in North America I believe the Tier 1 carriers started gradually and have little choice but to do so due to the growing demand for bandwidth and competition from Tier 2 and Tier 3 providers.

In North America, Tier 2 and Tier 3 service providers, in particular, have started to compete with the big carriers through offering Ethernet-based services. Many of these smaller operators have a more extensive footprint in their local market and can offer better and faster products than the large carriers, therefore the Tier 1 carriers have no choice but to react.

As an example, AT&T is now assessing how best to transition to Carrier Ethernet for mobile backhaul. Although the company already added the equivalent of 100,000 T1 lines for mobile backhaul in 2009, its published commitment to transition to Carrier Ethernet shows that it understands T1s are not a long-term solution.

Q: Do you think that mobile backhaul is one of the major drivers for Carrier Ethernet?

Absolutely. Today, mobile backhaul is one of the applications of Carrier Ethernet and there is significant pressure from the field to perform data offload.

Voice is predictable, the resources are not suffering from problems, but the data is the problem. I was speaking to a couple of operators in North America last week and they're saying the problem is that the capacity has multiplied.

One of the carriers predicts growth towards more than 100 to 200 Mbit/s for a cell site, which is huge. If you try to multiply a number of T1's for this solution it will not be applicable in terms of capacity or economics.

In many cases, they're using wholesale services from multiple, small operators. They're also thinking about deploying their own fibre, which is something that really they would rather not do.

Q: Geographically, where is MRV strongest?

The European market has always been strong, Northern Europe and North America are also good markets, and we are looking to increase our presence in all of them.

Q: Do you cover the Asian/Indian markets?

Parts of Asia, yes.

Q: MRV cites a strategy of "innovation, technology leadership and profitability" - are you achieving this?

Technology has always been the focus for MRV. We have the reality to back this up, and we have innovation in technology as we often anticipate the market.

This innovation means we catch the first adoption of the relevant carriers. However, we've had much innovation that has not been marketed correctly or aggressively enough over the past year, and we're starting to address that.

Q: Is it always an advantage to be innovative?

When looking at our product portfolio, we have products that will be innovative and that can anticipate the market, but we also have stable products that are very oriented to today's market needs.

We have the innovations and the solutions. The portfolio is wide enough to sustain the innovative parts, because we also offer the more commercial systems. In fact, MRV is the only company in the optical space that has a complete portfolio from optical components to systems - I believe this is to be really unique and absolutely grounded on innovation.

You're right in that innovation requires early adoption, but anticipating the market for technologies is a big asset because most providers now find they need something different - and we can move quickly to meet that need.

Q: Do you offer the price advantage to compete at the commercial level not just at the innovation level?

We're very competitive in pricing and our ratio of features/price is outstanding. Our margins are good enough to sustain profitability.

In many cases, price is critical and we have enough capacity to sustain competitive pricing while effectively keeping innovation a focus.

Q: You've improved your margins considerably, from 20% a year ago to 36% now. What do you attribute this to?

As stated in our last filed quarterly report on Form10-Q with the SEC, this was due to the improved margins in our Optical Components group, which are no longer dragging down the results of the rest of the company.

Q: Do you think you're getting the margins you require to continue to invest in innovation?

Definitely. When we design systems, we have serious advantages over other companies. We're advancing both the optical transport and Carrier Ethernet in-house.

Even the engineers working on those markets, they're sitting in the same cubical as each other, not just the same office! This gives a great advantage in technological development.

They share thoughts and replicate designs based on existing Carrier Ethernet designs into the optical transport much more easily.

Q: Do you find a reluctance from your core Tier 1 customers to work with a medium sized company such as MRV?

Usually when I'm visiting customers I ask them how they see us and how they see a working relationship with us. They mostly say that they see us as a stable company, not just financially but also on the customer relations side.

When working with Tier 1s we have a lot of tactical engineering - their engineers often speak to our engineers and have a great relationship that way. They see the stability, they look at guys that are bigger than us and see a larger gap between the engineer and the customer.

I myself come from the engineering side and in many cases the customer asks what experience I have in a particular area. The fact that you're then able to convey the feeling that you really understood the material and you can deliver, that's the stability. It's not just financial.

Q: Have you ever been through a channel partner in order to get a deal?

We have several partnerships with distributors and VARs that have outsourced services in the provider network - and it can be an advantage.

Q: MRV has been around for a good while now - why are you not bigger?

In twenty years, we have grown into a thriving company with annual revenues of approximately a half-billion dollars. We have made some strategic acquisitions and grown organically, which has been a good combination that has worked for us over the years.

We continue to strive to expand our presence and our market penetration. For example, in North America, there are 5,000 or so carriers across different markets, which gives us a lot of room to grow and expand.

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