• Ciena is acquiring Vyatta tech assets from AT&T
• Virtual routing and switching tech will boost vendor’s Adaptive IP portfolio
• Deal comes with a 5G managed services deal
• Marks the further offloading of networking R&D to partners by AT&T
• Acquisition announced as Ciena’s sales hit $988.1 million

Ciena has strengthened its relationship with a key customer by acquiring the Vyatta virtual routing and switching assets from AT&T for an undisclosed sum and, as part of the deal, has landed a managed services role to “support the Vyatta routing platform in AT&T’s wireless network across multiple 5G use cases, enterprise business services and virtual networks.”

The news came as Ciena announced its fiscal third quarter results, with revenues up slightly (by 1.2%) year-on-year to $988.1 million (record quarterly sales), though its operating margin dipped to 15% from 19.3%. A one-time tax gain boosted the vendor’s net profit to a very healthy $238.2 million for the three months to 31 July. See this announcement for Ciena’s earnings statement. 

The company expects its fiscal fourth quarter sales to top $1 billion for the first time, despite ongoing chip supply challenges that the company expects to last until the middle of next year.

The Vyatta move is interesting for both parties. AT&T acquired the virtual routing and switching assets from Brocade Communications Systems in 2017 to help accelerate its network transformation plans, and according to the operator’s CTO of Network Services, Andre Fuetsch, it served its purpose. “Our acquisition of the Vyatta assets in 2017 helped us virtualize 75% of our network and led to the development of the first telco grade open-source network operating system. We’re looking forward to the continued use of Vyatta and the development of new use cases as a result of this transaction,” noted Fuetsch in today’s announcement. 

Once the sale of the Vyatta assets is competed (expected before the end of 2021), Ciena will take over the ongoing support and management of the Vyatta virtualized functions in AT&T’s networks with the help of engineers that are transferring from AT&T as part of the deal (including some based in the UK) and will also then get to develop the technology further and offer it to other operators. 

From the AT&T perspective, the move appears to be part of a trend for the operator to offload the ongoing management and development of key network technology assets to partners: In July, AT&T announced a move to hand over its 5G core and Network Cloud platform to Microsoft Azure. (See AT&T takes a giant 5G leap to the public cloud with Azure.)

For Ciena, it gives the company tried and tested virtualized capabilities that will be in increasing demand as operators migrate to more distributed, cloud-oriented architectures. This is something Ciena has been targeting as a growth area for some time with the development of its Adaptive IP portfolio, which comprises slimmed down, less feature-heavy routing stacks that can run on general-purpose compute platforms and be combined with optics and software, including Ciena’s own Blue Planet orchestration and automation tools. 

Currently, routing and switching products account for about 7% of revenues and, based on fiscal third quarter sales of about $70 million, is generating revenues at an annualized run rate of less than $300 million. 

But Ciena President and CEO Gary Smith is very keen to grow this during the next five years, and noted during today’s earnings conference call that the company had picked up 10 new customer wins during the quarter for the routing and switching portfolio. 

“It's a big market and we're challenging there [against] some very strong incumbents, but I think we're proving we've got a very compelling but differentiated value proposition with the assets we've got... it will be an important market for us and it's a key investment, and we're, we're scaling investments,” stated Smith. 

- Ray Le Maistre, Editorial Director, TelecomTV