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Alcatel-Lucent SA (ADR) (ALU): Third Great Router War Leads Industry Transition

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Calling what is occurring a transition is probably a bit bold, because it really is just about more. More power, more capacity, more data. There is no inherent change in the way routers function. The Internet is just invading more and more aspects of our lives. Everything you own can link up to the Internet not just your phones. The move to the cloud means that massive amounts of data are flowing on the Internet’s rails instead of local networks with expensive systems replicated at all the possible locations they would be needed. Now you have one central location for data and services and only need interface systems.

Alcatel Lucent SA (ADR) (NYSE:ALU)Alcatel-Lucent SA (ADR) (NYSE:ALU) Jumps Into The Core

You can think of the Internet as a nexus of access routes, interchanges, and hosts. The hosts are the servers and hosts. Your computer would be a host. The access routes include all the cables and interchanges are routers. The amount of data on these routes is increasing dramatically as the Internet invades all things we do. To handle all this traffic, bigger and better networking technology will be needed. I am using my own terminology to explain my understanding. It might overlap with official terminology, but I mean the terms as their standard definitions would suggest.

Enter the new Alcatel-Lucent SA (ADR) (NYSE:ALU) core router. It is built on a lot of the innovations that helped make its edge router number 2 in the market. Being number 2 is less impressive when you consider that it’s only a 24% market share, but ALU needs all it can get. It also went into the market with nothing and built itself up. The edge router is a fantastic piece of technology and the routing chip they have in the most recent models, the FP3, is amazing.

The new core router is a beast of a machine with 160 ports running at 100GB full duplex. Full duplex means down and up speed can be at 100GB/s at the same time. There are more technical details I will spare you from, but those technical details are interesting to me. After all it is the company’s product, which is the key toward revenue.

The top-line version is two standard boxes linked to behave like one system. There is also a small standalone model for customers who do not need crazy levels of capacity. Now normally clustering reduces the utility per unit due to inefficiencies. For large clusters the idea is to get the inefficiencies as low as possible. With just two standard units interlinked the point is to function as only one system. All the marketing materials and datasheets point to it as one big uber-system instead of linked systems. These boxes will also be stacked into larger networks called multi-chassis support. The system also uses less energy while providing a lot more power.

Verizon already uses ALU’s edge routers and hopefully they will at least give the core routers a trial. Telefonica is already in trials with the router. The product is new so there have not been any confirmed high-value deals. The trials are good signs, but not guaranteed.

The core router market is $4.5 billion, per year if I can trust what I have been reading. That is pretty big money. Also, I would not be surprised if it grows faster than that. Standard Internet with computers is one thing, but now all our mobile services are moving to the traditional Internet. The difference between “phone” services and Internet services is disappearing, though the distinction was probably a fiction the entire time anyway.

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