In a few days I will be putting up the Alcatel-Lucent (ALU) saga I have been researching and writing. It is really just my thoughts on the company, along with explanations of the goings on administratively and technologically. I think that any regular investor who likes to be in charge of their own investing fate would find it useful. It is a lot of background, because I do not like to forecast too much. I can’t give you solid timelines, but I do give some general targets and timeframes. I might go back and add a bit more to the speculative sections. Right now it seems a bit fact heavy, but it is all my own thoughts. You can be assured it is not one of those computer generated reports that says this PE is considered low compared to the industry. This metric suggests the company is undervalued. A substantive part of the whole document is devoted to two products. I thought I would give a quick overview of both products from a more technical standpoint.
Also, if you manage to make it all the way to the end I have a new email sign up list. Even if you are on the old one sign up for the new one. Once you’re confirmed you will get a discount code that will give you 25% off the cost of the full report. No more digests or other stuff. I will only be sending you information about new developments. If you want to follow new articles just follow me on twitter or Facebook.
LightRadio
I know, the only thing in the world you wait for is me to talk about lightRadio. LightRadio is a small cell system that incorporates the cube that I love into a small cell housing called a metro cell. The cube is the heart of the product, and is modular. That means it can be easily swapped out during the upgrade cycle. Companies can install the metro cell casing with whatever features are embedded into it and lay down their cables. These things are not ugly like cell towers, but look like those boxy carbon monoxide detectors you can get for your house.
One of the most important things about the modular design is that an incremental upgrade can be done easily. Instead of having to pull out a bunch of equipment to upgrade the system they can just swap the cubes inside. This means less site time during upgrades or maintenance. Even if one malfunctions it can be popped out quickly. This is important as new hardware features are added.
The lightRadio cube is an integrated radio and antenna. This is actually one of the innovations in the cube, and its simplicity belies its importance. The tight integration of the product is one of its biggest draws. It is a compact device that offers fantastic cellular and internet service, but only in the immediate area. These boxes do not have a wide range, and are designed for coverage gaps and dense areas. Density is determined by both the number of people using mobile services and the amount of data. Ten users who use an insane amount of data if speeds were uncapped would be just as dense as 100 just checking email. Not all urban or suburban areas are created equally. Demographics matter.
These metro cells are now capable of 2G, 3G, 4G LTE, and Wi-Fi. That means they run the gamut. The integrated antenna is directional meaning that the full power of the cube can be focused on an area that really needs it. Also multiple cubes can face different directions. I have seen an example of a metro cell with two cubes built into it. They can split a region to provide better service. The wired connection can handle it. In all the intense hype surrounding mobile developments it is important not to forget that wired is and always will be king from a capacity and power perspective. For you online gamers out there, when you are in a super intense match do you want a wireless mouse and keyboard or a wired one? General rule of thumb is wired. Considering the low distances you can get wireless devices with very little lag, but they are unreasonably expensive. On a home networking front, I use a physical ethernet cable whenever possible, especially for streaming. Wi-Fi is just not good enough.
Small cells provide coverage in a tighter area. The distance between your phone and the small cell is smaller meaning that there is less airtime. It also means that the same air space can be reused out of range of the current cell without issue. Larger cell towers have certain built in limitations. They interfere with one another if placed too closely. Luckily large cell towers can have a relatively narrow focus too, but they are almost always omni-directional. Also, they are ugly, require expensive electronics at the site in a hut/box, and use a lot of power. Those big cell towers can earn the owner of the property they lie on some money in rent. Small cells take up an unassuming area up above if there is room so probably do not warrant much expense.
LightRadio through its efficiency and its integration of Wi-Fi should take the pressure off carriers to acquire new spectrum. The electromagnetic spectrum is fixed. There is a portion devoted to things that will kill you eventually, visible light, and radio waves. There are many more categories. The point is that the wavelengths are fixed. The portion devoted to carrying our data is divided by governments and companies. Broadcast television, radio stations, and probably the military have their allotments of the EM spectrum. It facilitates communication. Much of it is licensed as if it were some commodity belonging to the government of the nation. They hoard it and parcel it out as if they own physics itself. In reality, it is required to parcel out the spectrum properly. Multiple usage by companies causes interference.
If you want to know the importance of spectrum look no further than Sprint. This company already has a high debt-to-equity ratio due to the network updates it is undertaking, but it is still looking to acquire Clearwire. Clearwire has $4.5B in debt that Sprint would need to assume. The reason is the Clearwire has a ton of this beautiful spectrum and it would give Sprint the spectrum it needs , or more.
There is a lot more about lightRadio in my ALU report. You see sites I write for have editorial oversight. So they get all uppity if I get into too much science, or have fun with my writing. I am trying to break out into my own. I want to provide you with a ton of information and insight. I think the science is important. Other sites say that I am not an expert. Sure I do not have a PhD, but as an investor I have made an effort to understand the products and technology sometimes beyond the calling of normal curiosity.
Routers
Alcatel-Lucent has a new core router in the works. In 2004, it entered the edge routing business with nothing. Now it has a 24% market share making it the no. 2 company for edge routers. That is fantastic. The edge router will be an important part of its portfolio.
One of the issues with small cells is about the backhaul. Backhaul is an industry term of art that describes the process of transmitting data from the access point over to the core network. For now think of the core network as the internet. Your phone communicates with the small cells and that signal has to be routed to where you want. If you are accessing Google it needs to go to Google’s servers. The backhaul gets it from the small cell or cell tower to the internet. These ramps into the internet are provided by edge routers. Even big cell towers need edge routers. The thing about small cells is that due to their number and wide geographic footprint a larger backhaul network might be required. Carriers are concerned about this, because that adds an additional equipment expense on them to build this backhaul network if they want small cells. I think both will be rolled out gradually, but it will happen. ALU offers a backhaul solution for their small cells.
Now the company is releasing a core router that is mega powerful. Both the edge and the core routers are powered by an impressive routing chip that is capable of handling 400Gbps of routing. That is an impressive number. The chip is called the FP3 chip or routing processor. It allows a high level of efficiency. That one chip can handle that much capacity means that the power consumption can be kept under control. Processors that can handle less information do not use less power.
The new core router is a beast. Every slot can have 4 ports each running at 100Gbps full-duplex. Full duplex is important. It means that upload and download through the same port can be at 100Gbps at the same time. That means each port handles 200Gbps simultaneously but in different directions. If you’re used to home internet use you might not care, however once you get to the core up and down are just directions instead of fundamentally different processes. For example, if I am putting a file on the Amazon cloud drive, while streaming a movie both the up and down streams will be used. My home internet might upload slowly, but the core router will need to send the signals quickly, because someone else might want to upload information to the same source.
The core router currently comes in 3 models. The first two are very similar. The top end model is two base units linked together to be one system. The third is a standalone small version for carriers that do not need that much power. ALU has tried (and succeeded) to pack in the power of a multi-chassis system into one system. I am not sure how the linkage in the top end system works. What makes that a single system instead of a multi-chassis set up. It takes up two whole rack mounts. The point is to avoid the inefficiencies of clustering. My understanding is that multi-chassis and “stacking” are just a form of clustering. A single unit works at full efficiency, but if you want to add more capacity you need to plug in more systems. That leads to inefficiency per unit while increasing the overall capacity. The goal of software and hardware is the minimize these inefficiencies to becoming essentially negligible, especially when weighed against the benefits.
The full core router system has 160 ports running at 100Gbps full duplex. That is just insane. This is a powerful core router. If that is considered a single unit then the coming multi-chassis support will make it a fantastic contender. On top of all that power, it uses less energy than the competition. Being more powerful and more energy efficient is a great coup. Obviously, the marketing is very friendly. The competition has some choice words. Cisco sneered due to the lack of multi-chassis support. It makes me think that they are saying four of our boxes can beat what ALU just rolled out. That misses the point though. Details on multi-chassis are sketchy for now. A 1-to-1 comparison would be hard. ALU’s router seems to use multi-chassis as the next step to scale up as demand grows. From what I can tell most other core routing products use multi-chassis as the de facto starting point. ALU’s marketing materials claim that the goal of the core router is to provide all the power needed in one system. This avoids multi-chassis with some of its inefficiencies until it is absolutely necessary. It will be absolutely necessary, but ALU allows customers to slowly get into the water instead of having to jump in and buy boxes in bulk.
Final Thoughts
This article is not about the industry market and revenue potential. It really is about the technology. I wanted to give you a taste of some of the stuff I talk about. This overview of the products is really all you need, but I give more insight in my Alcatel-Lucent profile. I want to call it a research report but that has legal connotations with those research firms out there so I use profile and research report at the same time. Confusion is good? It is a research report, but it is not a research report from one of those companies that is licensed and plays at omniscience. Instead think about it like my personal research coupled with some musings. I go over industry numbers in the report among a ton of other things.
If you enjoyed reading all this stuff about ALU’s products you might really enjoy the report. I want to get away from the cookie cutter format forced upon me by the other websites out there, but I have bills that need to be paid. Your purchasing the report tells me that you like my style and prefer more in-depth looks at certain companies instead of the boring by the numbers approach of the more expensive firms. I have gotten $90 dollar reports that use publicly available numeric information and give me boxed responses. This PE is high for the industry, it could be overvalued. Thanks a lot guys, best $90 bucks I ever spent! I try to avoid that. It really is my thoughts and my voice. I wrote this article in my voice too. Though there is a bit less humor in this one. I try to keep it upbeat in the report. Your support will help me continue delivering information the way I want to deliver it.
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