Thanks a lot for coming. I know it's hard after one day. I'm sure everybody's at the bar last night. I know when I was sitting in the lobby, people were trickling in, then they were going to the view, they were coming down. It's just—so thanks for coming. I appreciate you coming a lot. A lot of you are investing the time with us to learn about Nokia, especially with the combination of Infinera, what our plans are. Our intention today is to talk a little bit about the trends we see in the market, the challenges the optical industry is facing, and the requirements that are being placed on it going forward, especially in this context of AI.
We want to talk a little bit about how our optical business, in combination with Infinera, is looking at addressing this opportunity with the expanded scale we have from not just a business volume perspective, but from an R&D, from an expertise, from a reach, from a solution set perspective, how we are coming together really, really quickly, to be honest. That is quite exciting to come together and address this opportunity. We have a great lineup of speakers. We have Federico Guillén , our President of the Network Infrastructure business; James Watt, who runs our optical business; really senior leaders within the optical business, Ed Englehart and Ron Johnson. They will all be talking. We will have a presentation for about 40 minutes. We are going to leave a lot of time for Q&A at the end.
One thing I'm supposed to tell you before we get into that is to read the safe harbor statement. Thanks to our IR friends who insisted I must read this verbatim, or the lawyers will put me in trouble. Bear with me. I'm not going to read this whole thing, but I have a condensed yet three- paragraphs worth of description. During this event, we will be making forward-looking statements regarding our future business. These statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that cause such differences can be both external as well as internal operating factors. We have identified such risks in the risk factors section of our 2024 annual report on Form 20F, which is available on our IR's website.
We also remind you that we are currently in a quiet period leading to Q1 earnings and will therefore not be addressing any financial questions or giving any forward-looking statements or commentary or update around the progress during the quarter. Please refrain from asking questions about that. Thank you. Without much ado, I'll introduce Federico to the stage.
Sure. Yeah.
All right.
Hello and welcome, everybody. It is 8:30, and I already broke two rules. I was telling Ron that there are two rules for speakers on a stage. One is do not go to the bathroom after you are mic'd. The second rule is never drink coffee before going on a stage when my cup is there. Okay, I will do my best. As I said, welcome, everybody. As you know, this industry that we are in in the recent years was kind of a roller coaster. We had tremendous growth for investments during the COVID times. What happened during COVID, you all know. I mean, we were all locked down. Very soon you realized that you could even tell who was connected on ADSL, who was connected on 4G, who was connected on fiber. The demand on fiber grew.
Right after that, the demand on IP and optical. It was a wave of growth. After that, there was a sharp decline. The decline was because, obviously, all the customers wanted to cope with the traffic growth. They overinvested—not overinvested, but they created inventory that then we had to digest. It came, the decline. What we are seeing now is—it is coming in the perfect moment after the combination with Infinera—a new investment wave driven mainly by AI and data center and LLMs and all the traffic growth that is coming from that. The thing is that this is the lifeblood of the network, is AI. AI, I used to say when we were talking about the metaverse, I used to say, I do not know when the metaverse is going to come.
The only thing I know is that I'm going to have to deliver a lot of traffic. With AI, it's different because there is not so much hype. It is a reality. It is there. It's already generating a lot of traffic that we have to deliver from fixed, from IP, and from Optical Networks. We are there to support. No wonder OFC is the place to be this spring because this is the right place to discuss and try to solve those problems that the industry is going to face. Now, our sector, as I was saying before this, has been in a low tide. Warren Buffett once said, it's when the tide goes out, you can see who has been swimming naked. When the tide goes back up, you see who's got the better boat and the better crew.
At Nokia, we are convinced that now we have the better boat and the better crew to navigate this way. In NI network infrastructure, we have three business divisions: fixed networks, IP networks, and optical networks. Fixed networks has been experiencing massive rollouts during the pandemic, as I said. The key in fixed networks is to cope with that demand that is coming. Half of the households worldwide have fiber coverage, which means that the bottle is half empty because there is the other half that we still need to cover. On top of that, there is a lot of pressure to increase the capacity of the fiber. Once the fiber is there, fiber is the limiting factor of fixed networks deploying the fiber. I mean, it could take five, seven years to give enough coverage in a given country.
Once the fiber is there, it's a matter of upgrading the fibers. We started with GPON. We are now seeing the wave of XGS-PON. In Nokia, we're offering already commercially XGS-PON and 25G PON. We have tested already 50G PON and even 100G PON, 50G PON with Google. We have demos on 100G PON. Everybody likes to talk about more capacity, but the reality of the fixed networks war is it is not so much how much capacity you can deliver as how much money the end user is willing to pay for a given service. Many times we have seen that we have a technology that is much better today, but you need to wait a little bit until the cost points match the end user demand in terms of cost.
We are getting ready into 25G PON. People started to pay for that in commercial developments. It will come 50G and 100G. When they come, we will be first as we normally are. On top of that, it is very important to have management platforms that support the current needs of the industry in fixed. Corteca for the devices and Altiplano for the network is helping our customers to make more money, to monetize their investment, but also to save some money. In fixed at the end, it is about investing in innovation to be ahead of competition all the time and investing in cost improvement to match this end customer prices demand that I was talking about. In IP Networks, we are investing, doubling down in data center for AI, as you saw in our last quarterly results.
We have been slowly but surely positioning ourselves in that domain over the last three years. Now we're starting to get some benefits out of the data center space. In the normal routing space, we are very happy to see that in Q4 we were number one worldwide in total routing, excluding China. In North America and in EMEA, we're also number one for the first time ever, for the first time ever globally. Again, in EMEA and for the first time ever in North America in total routing, which is, I mean, this has been a ride of 20 years before we got into that position. Now we are leveraging that position to double down, as I said, in investing in data center and opening new spaces. In data center also it's about innovation.
We just launched our EDA platform, which is the Event-Driven Automation Platform, which is as important as the hardware and software as a Linux or whatever other software we're using itself. Because in data center, it's not just about getting the right cost point with the right level of performance, resilience, and quality, but also to have the automation tools that allow you to manage 100% automatic all the things that you have in the data center. Automation is absolutely key. Innovation is what is giving us the possibility to, even if we recognize we are a challenger, we are gaining momentum more and more in the data center space. We have already some recognition by the market with some references in GPU as a service type of networks with CoreWeave and Nscale and hyperscalers like Microsoft Azure, who selected us for their data center deployments.
On top of that, we are in partnership with people like Kyndryl or Lenovo for enterprise data center. Of course, in service providers, we have very good references as well when the service providers are building their own data center for their consumption or to provide AI as a service to others. Now, the industry is recognizing us for the second year. GigaOm recognized us as an innovation leader, outperforming in data center switching. We are positioning ourselves as I said. Finally, in optical networks, we have a supercharging business now with the combination with Infinera. We are surely excited about this combination because it's going to allow us, well, to have the volume and to have the scale and to complement ourselves in order to better address the market.
I'm not going to spoil the presentation of James Watt, so I'm going to give him the floor and he will talk to you about the optical network division.
Thanks, Federico. Thanks, everyone, for being here. E . AI is bringing a lot of pressure. Three main areas, a lot of others too, but three main areas. Need for capacity, not just capacity, but capacity in the right places in those networks, right? There is a push for capacity on moving training data sets around. There is push for capacity on getting the inferencing answers to the right place and getting things between the different elements of that. Capacity, capacity in the right place. Power is another one.
We've been hearing about this now for a while. This isn't new. Even the optical networks space, we've been working like crazy to take power out of the network for the last 15 years, ever since we started moving to Coherent. The power constraints and the impacts of power in the AI world are not just on the equipment themselves, but they're on architecture, they're on latency requirements. They have network- level impact as well as the equipment- level impact. They're changing where people locate things that has impact on how networks get built and what we need to give to our customers to build them. On the line system side, you know, the great news is with a lot of hard work over the last decade and a half, we figured out how to get to Shannon's limit.
We can fill up wavelengths, we can fill up fibers. The challenge is all this capacity has to go somewhere. Now we need to find better ways of building networks that get that capacity they need and make using multiple fibers much more tractable than it has been. We've done a great job of getting from C band to C+L. Now we've got to go beyond. A lot of pressure on capacity. It comes out in different ways and different places. If we talk about places, you know, different parts of the market, right? The optical systems market, we know Coherent Pluggable is a massive growth area in the market and for us. Inside the data center, all that training and inferencing, which I was talking about of having impact on the wide area networks, has massive impact on the need to scale inside the data center.
That power equation has to be solved there as well. Something that different technologies, different players can make an impact on. If you look across all the parts, even of the WAN, different parts are feeling the pressure in different ways. DCI, a lot of pressure on that, different customer bases, a lot of pressure on wholesale and other related markets, MOFN-type markets, people needing connectivity where they do not operate. Submarine links, if you look at the growth for the last few years, I had the pleasure of working beside a division whose whole focus was on subsea cables, and they were going crazy. If you look at the amount of growth, the amount of bandwidth, and when that bandwidth, not only does that bandwidth have to be terminated, when it comes ashore, it has a huge impact on networks.
Finally, you see geographical differences, why different players, different levels of starting point and serving, much like Federico mentioned on fixed networks, you know, where you have places that are underserved, you get a massive growth rate as you catch up on serving them. Significant growth, a lot of it driven by different pressures, and you start to see it. Imagine a, you know, you've got a multidimensional cube here. Some of them are bright green, some of them are just normal green, but there's a lot of different activities that go on underneath. What do we do with that? Different activities, how do we bring it back to something we can reason about, we can explain to our customers, we can keep ourselves organized and make progress? Progress and the rate of progress is the key thing. Going back to scale, right?
The reason for scale, one of the main reasons for scale for us is to get more innovation that matters in the hands of our customers sooner. To do that, not only do we need to be laser-focused on what they need, but we've got to have a systematic way of thinking about what we do. Our solution principles are very straightforward. It's about scale, it's about simplicity, and it's about security. Scale is, if you will, a bit of a given if you look at the drivers of the market. Although I will hasten to point out that, again, as you look at different parts of the network and getting bandwidth to different parts, it's the right scale.
It's not only scale up, which is a hard enough problem, and Ed will talk a little bit about that later, but the right scale to get the bandwidth to where it needs to. As these networks grow, not just in capacity, but in size, automation is essential to make their operations tractable. The one thing I'm certain about, about any network, and probably the only thing I'm ever certain about a network, is something somewhere needs attention. The key thing is to make sure people understand that the machines, whether it's with AI, whether it's with other cleverness, can tell the humans where they need to intervene if the machines can't take care of themselves. Automation is the only way to make things tractable.
You know, security, I think we hear enough every day, and it's really what we can do to make networks secure and fit into the security mechanisms of the left that makes a huge difference in the overall safety and security of the services our customers deliver. Again, small set of principles to keep us, especially as the larger team, laser-focused on what we need to deliver to our customers. Where are we starting? Both teams, both sides of the team, because it's one team now, have a great track record of innovation. You know, and whether that's the first-ever 100 Gb single coherent interface deployed, by the way, I'll point out 15 years ago, whether it's PCS, whether it's multi-vendor operable PCS, as we're demonstrating down on the show floor, there's a huge amount of technological innovation.
Together, this pool is now available to our customers, the results of this innovation pool. Together, we're going to be able to do more faster because we can focus on taking this innovation, and we only need to apply it to the same problem once, not twice the way we've been successfully doing it for the last couple of decades. More innovation on our customer hand faster. If you want to understand, you know, where are the building blocks we're talking about? Today, we have not just the biggest, but the best DSP team in the industry at a time where the pressures on innovations, the DSP space, the pressures for use of Coherent across different problem spaces is bigger than ever. If you look, you know, we have fundamental research in Bell Labs.
If you think about what some of that is and how we all in the industry benefit from that on basic building blocks, we still continue the research to make sure we have what we need to benefit from in the next years. On the material science, which is a key underpinning element of the optical networks industry, we now have the world's richest set of internal resources, not, you know, most importantly is the addition of indium phosphide to what was already a rather robust set of capabilities, not just in the material science and the design expertise, but also, you know, the fabrication, test, and packaging of those devices. We have taken two very successful teams.
Together, we have exactly the set of technologies that you need if you go and revisit the needs for scale, for power, for latency, and for the architectures that are going to underpin the AI networks. That is, if you will, where we come from and what we brought together. The other part of this is, again, the people, but the other set of people, the people that take these innovations and bring them to life with our customers, in fact, drag out the need for innovations from our customers, take them, execute projects, take care of our customers, and evolve their networks. That is the other part of human capital, the local expertise delivered globally that complements the innovation and makes sure we get the most and our customers get the most out of it, meeting the challenges they have.
If you take that, you look at us today, we're number, we are the only player who's number one or two in all markets of the world, right? That's, we're only getting started. We have a lot more to do from here, but we have a great starting point, a great ability to take care of our customers and make sure they get what we need. Overall, where does that leave us today? Thousand plus customers, roughly $3 billion in revenue, a massive amount of traffic carried across the top, you know, nine of the top 10 hyper scalers, 48 of the top global service providers, and a massive set of mission-critical enterprise customers. Again, multiple market segments, multiple technology segments, underpinnings of the networks that keep things going day in, day out, despite the pressures which continue to come at them.
Now, that's where we're starting. As I said, there's a lot more to write. So, you know, if you think about, I talked about innovation, let's group that into four buckets, right? Platforms and optical line systems. Really the photonic infrastructure, automation to make it tractable, as I said, the coherent optical engines that get the bandwidth across that, but also getting the bandwidth in the inter-data centers. Ed, if you want to pick up on the first couple, please.
Thank you. Good morning, everybody. Great. Thanks. I get to talk a little bit about systems and automation and security. First of all, I want to talk a little bit about the portfolio. When we talk about systems, it's really the boxes we sell. Pulling these two portfolios together gives us a full suite of systems that we sell.
First of all, with OTN switching, this is really optimized for efficient large-scale grooming, large-scale aggregation in the large CSPs, mainly in the core of the network. We have a whole portfolio going up to 48Tb of size there. In the metro and the regional space, we have packet and OTN. Here, the ability to aggregate and groom any type of data traffic coming in, be it Ethernet, be it some legacy protocols, anything, as well as really security of delivery of those services, really focused on latency, really focused on size, really focused on density, okay? The last one is compact modular. Really efficient, very high transport capacity, focused on data center. That is data center form factors, data center applications, front-to-back airflow, various things like that.
How do we get really all of our electro-optics engines or coherent engines, as James referenced, into all of these different boxes? We pulled all of that together. It is really a strong suite of ours. When we talk about OLS, and OLS is optical line systems, those have been evolving a lot over the years, right? C+L is very standard today. We introduced L-Band, wow, as part of Lucent back in 2000, but C+L we have had out for a long time. As capacity continues to increase, the capabilities in the OLS and the ability to route any wavelength anywhere or come up with the right density for a particular application is really, really critical. We have got a full suite here, which is really nice.
Fiber capacity, the different architectures for the OLS are going to continue to be growing points for everybody, especially as we're at Shannon's limit now. If we look a little deeper, I talked about C+L. That's really the standard that's being deployed right now. This isn't just in the long haul like it used to be, but it's in metro, it's in regional, it's really everywhere. We have, you know, purpose built around this. Some for CSPs that allow us to grow as their traffic patterns grow, so they have a more pay as you grow, but also combined C+L, so they can put everything in day one. Super C and L-Band gives a little bit of capacity increase for some particular applications. Really nice for some of the wholesale space and things. We have hyperscale OLS.
All of our hyperscale customers are driving slightly different architectures and are looking for different things. There, it's really very high capacity, very dense solutions that allows them to deploy a lot of traffic, you know, day one in essence, and continue to grow that. Okay? Where are we going? There's a lot of work going on in terms of multi-rail OLS. What do we mean by that? You've heard in years past at this conference about SDM, okay? Multi-rail is really the step to get us there from a node or a network perspective. How do we make sure we have the right components so we can transmit over multiple parallel fibers? Okay? That could be bundled, that could be multicore, various things like that.
How do we continue to consolidate and integrate our equipment to really optimize those solutions as customers are deploying more and more parallel waves? The other key one is Hollow Core. This really brings some key application advantages and some real interesting technology advantages that will really drive the OLS and where we're going with the OLS. First of all, with Hollow Core, significant latency improvements. Okay? Second is much higher power you can transmit over this, which gives you some better reach. More importantly, is significantly lower electro-optics or impairments based on the fiber, which again gives you better performance and other things. Okay? There are things we're working on to really optimize the overall line systems to go into all of these. With all that great systems work, all of that really comes together with the software. Okay? That's the automation software.
You see in this circle here really what we call the life cycle of the network. You got to plan it, you got to commission or deploy it, provision. As James said, you got to assure that it's working. The main thing is make sure one, customers can grow quickly, make sure that they can really monitor and the system identifies and corrects where needed, faults as quick as possible. Then it's optimize. How do we make sure we're packing enough wavelengths onto each fiber? How are we making sure that the customer can grow quickly enough? That's really from our overall suite of products in the network automation area. Now, AI, James talked about how AI is driving capacity. It's also driving some of the capabilities in our products. We're always looking at ways to automate overall.
With the bandwidth continuing to increase, it does bring more complexity in terms of how the customers are deploying it. Thus, automation is becoming more critical and more mandatory throughout. Okay? We're looking at automation for things like sensing and detecting patterns in the overall data streams so we can predict when there's going to be a fault or when there's going to be a fiber cut. Okay? You guys have seen that at some of our past shows. We've got that ongoing. We're using AI to help with diagnosing problems and not just raising alarms like used to happen, but really diagnosing and projecting or suggesting to the customer what the overall resolution is. All of that ties together. Really, automation in our overall network automation area is critical.
As we're all here in San Francisco walking around, we see the Waymo, you know, fully automated cars driving around. Our plan here is really fully automated networks. Okay? And really tie that all together. Truthfully, there's nothing preventing us from getting there. It's just working down the path to get there. When we talk about security, similar things. This is really coming or becoming a bigger and bigger buying decision for our customers. With many of the customers, it's the government certifications or security certifications like ANSI, NIST, common criteria, but also signal path encryption. We support this in multiple ways. With the introduction or the evolution to quantum computing, what's becoming more and more critical is really quantum safe networking. How do we make sure that what we're transmitting today in those data streams is safe for the future?
There's a lot of concerns about people recording data today, storing it to be able to decode it later. Okay? We do a lot of things around symmetrical pre-shared key distribution, rotation on periodic basis, as well as secure hardware to make sure even when quantum computers become more and more popular, that is not a key aspect here. This is really a key thing for many of our enterprise customers and CSP customers. Okay? That's the gist around the systems and automation. I'm going to hand it over here to Ron.
Thank you, Ed. I'm really excited to be here today and be able to represent the subsystems piece of bringing the optical teams together. You know, four weeks ago, we closed this acquisition. Day one, when my badge said Nokia, you know, we showed up in Murray Hill.
What an amazing place to show up to have this discussion. We showed up in Murray Hill, where Ed and my team were able to get together, compare all of our notes, all of our customers, all of our plans, and bring the two portfolios together and make decisions about what we were going to do going forward in order to maximize our ability to move very, very quickly and to really focus on a few key things: time to market, cost, performance, and scale. I think that that is something that I'm really excited about because bringing these two teams together, you know, I would say, I would argue that with the way that the market was going, with the fragmentation that's happening with the content providers, it really made it so that we had to build more DSPs to be relevant in more applications.
Bringing these two teams together and having the amazing capabilities in both Infinera and Nokia to be able to pull those together really gives us this opportunity to hit the market fast and to do that in a way that allows us to go after all of those different applications. That is what I'm going to tell you about. In this subsystems team, we have the ability basically to build optics. Those optics are really coming in two capabilities now. One with silicon photonics, which has some unique capabilities for certain applications, and with indium phosphide, just a different set of unique capabilities for certain applications. We have both of those now in our toolbox. With that, we build optical engines. Those optical engines sit in front of the DSP to modulate the light onto the fiber. We have the DSPs. This is a critical area.
DSPs are complex. They take large teams. They take a lot of money to invest in. Having the revenue to justify the R&D spend to go after the multiple DSPs that are required to hit all the applications that we'll talk about in a minute is super critical. I think that's, you know, we bring a unique capability now to have the scale and the team to be able to execute to that. We take these optical picks and we put them in pluggables, and we drive those towards the data center. You could see that in our booth downstairs with our ICE-D portfolio. We also take it and put it in other pluggables with Coherent that allows us to leverage those pluggables directly into systems like what Ed talked about or directly into routers.
A lot of effort's gone into integration into all the different routers within the industry to go after the ICP ones that we talked about earlier in the year. We also embed those into larger engines where we throw more power at the problem to get better spectral efficiency. All of these capabilities exist today. They're all shipping today. We have the opportunity to now move faster towards the next variant of these different engines in the next couple of years. Those engines, whether they're pluggables or embedded, fit into all of the systems that Ed spoke about. Going forward, we'll also be able to take these Coherent engines and put them directly into routers. You'll see the Nokia router downstairs that has the ability on a per slot basis to do 36 ports of 800 Gb .
An amazing amount of traffic, amazing amount of capacity in a one RU footprint. What is really interesting now is that because these applications are so prevalent, because they're so necessary, all that AI traffic that's happening inside the data center driving massive needs for scale-out applications, 500 meters, 2 . It is also spilling over into the WAN. As it spills over into the WAN, we really see an opportunity to optimize around what is called campus networks. This can be anywhere from a few km to 20-kilometer type distances, sometimes impacted by the use of optical switching and the capacity or the implication that the insertion loss has of putting an optical switch in the path. Scaling up to access, metro, DCI is kind of a generic word. It is used to really talk about any of the connectivity in the content provider, long haul and also in subsea.
When we think about this, it's optimization around, you know, in scale-out applications, 500 meters to 2 km, 10-20 km, 100 km, 1,000 km, and then beyond. We have a need to have optimization around all of these. That doesn't mean we build that many DSPs. What it means is that the combination of DSPs and optics drive the optimization for each of those areas. The last piece I want to speak to is what we call ISD. ISD is the ability to take our indium phosphide integration and build an optical front end for multiple different types of reaches and multiple capabilities within the data center.
The most interesting one is the one here at the bottom because what that really does is if you have a captive environment where you control both ends of the circuit, you can get a massive amount of power savings by eliminating the DSP from the optical pluggable and use the switching chip or the driver from the switching chip to drive that directly. We call this linear drive optics. We can also leverage that same engine to go into half-retimed or fully retimed applications. These give you either multiple different reaches or different compatibilities with other solutions. What you'll see in the booth is that we take this engine in this kind of format and we could drive it today even 15 km.
It is really an interesting evolution in this space where some people talk about coherent light, like taking coherent and bringing it down to 20-kilometer type applications. There is also a push to move IMDD or these type of intra-data center applications up to higher distances. As we can push this up, it is like electrical versus optical in building a system. If you can make the electrical work and you can scale it, the answer will always be electrical. If we can scale this up, this will always be IMDD will always be the solution to do that. Ultimately, as we transition from this generation, which is 1.6 Tb and beyond, we go to 400 Gb per lane. This will drive the need for coherent to get to these type of 20-kilometer distances. The goal is always to push this as far as we can for these different applications.
With that, I will turn it over to James.
Thanks, Ron. If we look across all that, you know, where are we ending up? Where are we going to be? Innovation is the core of it. That is more innovation sooner, more in the hands of our customers. On scale and breadth, yes, it's the scale of the business, which, as Ron pointed out, has an effect of its own. It's the breadth, as you saw, not just scale in the core optical networking business that we've been in, but scale into the pluggable optics market and even beyond applying our technologies, our capabilities to increasingly other markets and taking our track record of innovation, of problem-solving and delivering reliable solutions and using that to help our customers solve the problems they have. That's the optical networking part.
As Federico said, you know, we live in network infrastructure. The amazing part of that is I have on one side of me the world's best IP business. On the other side, the world's best access business. Together, we are the preferred network infrastructure provider for everybody, everybody around the globe and growing that infrastructure that we can provide into the data center while taking great care of our core markets. Overall, that's where we are, bigger, stronger, and faster. Thank you.
All right. That's the presentation part. By the way, I don't know if you guys have been to the show floor or not. We do have two booths. Some clever people came up with the line, "Too much innovation to fit in one booth," which is absolutely true.
It's a tremendous amount of capability of showcasing all the way from the ICE-D pluggable to line system running over hundreds of km. Really, you should go check it out. We have our IP, our optical, and our fixed access solutions, the entire NI portfolio on display. Please come check it out. We're going to start the Q&A session. We have everybody available here. Whoever wants to start. Do we have a mic, I guess, or you guys will have to just speak up? We have mics. All right. Mic's coming. Cool. One, two, three. James, you want to come to the middle a little bit?
Great. Thank you very much, Simon Leopold, with Raymond James.
Two questions that I think maybe are a little bit related, one of which is, I think one of the challenges that Infinera had faced as a standalone company was driving utilization of the fabs higher. I would like to get a better sense of what Nokia can bring in to improve that utilization of the indium phosphide fabs. The other aspect is coming out of meetings at Mobile World Congress, which was right after the deal closed, I felt like ICE-D was considered sort of a call option, was sort of above and beyond the expected synergies. In this presentation, it looks like it is a real part of the strategy. Did I misunderstand the message at Mobile World Congress? Did it evolve? Any of the above? Thanks.
I will take the second.
Okay, go for it.
Yeah. I mean, what can you expect?
When you do a business case to propose your board to make an acquisition, you prepare for the worst and hope for the best. You do not take into account everything that at the time that I proposed to the board was not so clear as today. Of course, now we are after day one. Now it is part of our business. That is what it is. It is an upside that we are going to try to leverage as much as we can, believe me.
To the former, the first question, Simon, I think there are two parts to that. One is simply scale, right? The increased volumes will increasingly fill the fab. Also, as we spread, as we apply the technology to other problems, it will also drive incremental volumes as well.
I think, as I said, there's the scale part, but also as we broaden out the business, that will bring more to it as well. ICE-D being the first, but not only example.
Thank you. Second one here. Then we can go third there.
Yeah. I actually have two questions. I just really have two questions as well. First question is on Ron, on your presentation about IMDD instead of Coherent Lite. And then you also had on that slide eight, I think, eight watts of LPO. I thought the underlying story there was you use Coherent Lite because the hyperscalers want to move things closer on the campus distances of under 20 km. I haven't seen IMDD being really talked about in that sense. And then within that, LPO is supposed to be getting rid of the DSP.
Why do you have a solution with a DSP in it?
I think the interesting thing about the—I will take the second one first. The DSP or not the DSP really has to do more with interoperability and the ability to go after the whole market in terms of intra-data center. We want to have that flexibility to go after the whole market. Some of our customers have aspirations or have the capability today to have an optical switch in the path. Sometimes that requires more reach, more dBs to be able to go through that optical switch and deal with not just one hop, but a hop back to the switching elements or the AI elements. It is optional, right?
The goal of the technology was to build a front-end optical engine that's flexible enough to work with a DSP or without a DSP so that you could, in some cases, get this great performance without a DSP to enable not just NIC-based LPO solutions, but also switch-based LPO solutions. With the DSP, there's been a lot of work by some of our content provider customers to work with the Marvells or Broadcoms or Credos or MaxLinears of the world to drive those capabilities that they want inside that DSP. They dictate that. They expect that in their solutions. We don't want to preclude ourselves from being able to apply to those. I'm not sure you guys in the room that predict LPO versus timed have got it right, right?
I think that as time goes on and people get more confidence in LPO, we'll see more of the market TAM move from timed to LPO. We just do not want to preclude ourselves from both.
The go-to-market for that is building your own modules or kind of like doing JDM stuff like what Marvell and Broadcom and all these guys do?
Yes.
Okay. So it's building your own modules?
No, it's whatever path to market makes sense, right? There are multiple paths to market that make sense. We're not going to be the lowest cost module provider when it's really, really simplified or when our content provider customer is dictating that it has to be InnoLight or has to be TFC or has to be Source Photonics, right? We're just going to meet them where they want to be met.
Thanks. Third question here.
Hey, Steve Saunders from FNTV. Great job talking about the technology. I wonder if you could address the business case for your customers because you obviously have identified the problem of AI traffic and you have a technology solution for it, but that does not really matter if carriers do not have a business plan to pay you for all of this new capacity-enabling equipment. At the moment, they are particularly in this country in an existential crisis, are they not? The traffic is coming from the hyperscalers and the OTTs who make money from it, but we expect carriers to build the networks to support their businesses. I do not see a path out of that crisis for them. What is your advice for your carrier customers who you are trying to sell this equipment to?
I think, look at the—and the reality is that where and how AI is impacting which network is varying over time. The beginning of the impact, and I would argue we're in fact in a bit of catch-up mode, is actually more with the hyperscalers. It does when they need capacity, large amounts of capacity, as you correctly point out, from the service provider. That is increasingly—it has been, but increasingly a financial transaction between the two, right? It's not a peering or a free peering type arrangement, right? It's a, "I need terabits here. What's that going to take?" Everybody is doing build versus buy calculations. Sometimes they buy capacity and sometimes they build up networks. I think I'm not sure I'm in a position to give my customers advice other than how to build networks.
I think if I look at what's happening, if I look at the amount of wholesale deals, the amount of capacity deals, and the amount of managed optical fiber networks, I see that disconnect you're highlighting being dealt with in a very conventional commercial way so far. Now, as the world unfolds, as there's more interesting results to get to the end customer, absolutely, it'll be very interesting to see what happens next. On a lot of the infrastructure, there are very well-thought-through and effective structures that are being used to get those builds done today.
I will add something. When we talked in the last months about when I got the questions from you about how the future would look like, I always had to tell you, I cannot know yet because we are still competitors.
I don't know 100% the portfolio details from the other side, as they didn't know our portfolio details. Of course, we had two teams working together under NDA. They were preparing all the portfolio decisions that Ron was describing before. We could accelerate and after day one, make the decisions. One thing is to do due diligence to make a case to acquire a company. Another thing is what you find after the acquisition. What we found was great. Basically, today, I can say that we are the only company that in the data center space have gateways, switches, and data center interconnect because they bring much more than what we already have. When we go to customers now and you put together the automation tools plus the three elements, we're starting to gain momentum.
We're really happy with what we found. Plus the data center interconnect, I'm sorry, plus the intra-data center capabilities. We have all the pieces.
Question. Let's post there first, Jeremy.
Hi. At the Executive Forum on Monday, there was a question put to Gary Smith about AI, kind of keeping with Steve's theme. Is AI a bubble? He gave some interesting comments on it. Given the high-level executives in this room, curious what your response is to—we know the hyperscalers are buying all this stuff now, but obviously, there's a concern about will it be shut off as a spigot in a year or six months or not?
Yeah. I mean, you can always think that there is a bubble. We have been in many bubbles in this industry over the years. We have to be careful. Why am I optimistic?
Because remember, we used to have a business called ASN that we still have because we have 20% of ASN. We are still part of the board of that company. If I see the order book that they are building, it makes me feel optimistic because hyperscalers keep on building submarine. That is the first thing to think that they will keep on feeding those cables with more traffic from the data centers. There might be a bubble, but I do not see it anytime soon happening.
I wanted to—the other interesting point was the hollow core fiber that you had on that part.
It seems to me like the combination of liquid cooling, the need to be able to get those data centers close to fiber, close to power, would lead companies like Microsoft to cancel large leases and then try to buy more dense data centers that could be more geographically put in locations that are more closer to fiber and closer to power, which is where the bottleneck really is. That would imply that if that was true, it would imply that the market for WAN interconnect in terms of the campus-to-campus would be an exploding part of the next kind of growth for interconnecting clusters. Number one is, do you share that view? And if you do, my Microsoft is all in on hollow core fiber. Do you share that view?
How are you investing from product to go to market to take advantage of that if you believe that's true? Thank you.
Okay. Maybe I'll take that in two parts. I think hollow core or not, there is architectural pressure in the network, and it's shifting. You saw when I was talking, as I said earlier, there are different degrees of pressure and growth in different parts of the network. For sure, as power shapes campuses, drives proximity, drives more campuses of a certain size, the need for interconnect, not just between those campuses, but also to where they're sourcing and syncing traffic changes, right? That puts pressure on upwards pressure on volumes. It also puts pressure on network architecture, which puts pressure on portfolio.
If you look at some of the demos that we had on the slide earlier, some of the symptoms of that pressure are showing up in the product line already, number one. I think macro, I'd agree. Specific customers, I'm not going to comment on, but I think macro, that observation is correct. You see evidence not just in the market reported data, but also in the portfolio. Number two, on hollow core specifically, different impacts inside and out, inside the data center on those campuses and beyond. Certainly, taking out latency, taking out non-linear effects changes how things work. You had a question earlier about coherent light versus IMDD. Think if you change the fiber type, that endless battle between the two that we do at every single generation, the dynamics change in the battle, right?
Absolutely, there's a change there, which again drives technology selection, drives investments in how people want to build things, whether pluggable, whether otherwise, cardinality of switches, ability to manage loss budgets, and things like that. Again, architectural changes in the data center fabric shaping what people, ourselves included, choose to build. For sure in the WAN, right? That's why Ed was highlighting it. Yes, absolutely. Combination of hollow core, some grouping of fibers. I leave it to what we can practically do. Again, shaping product line, shaping investments, and is the only way we're going to get people the capacity they need. Now, all those things have two very different sets of activities. That's why you see the impacts at different times. One is the deep technology things. We tend to talk about those a lot sooner. Then there's all the practical things.
Every time we change fiber type, whether it is to hollow core, whether it is to uncoupled multi-core or whatever, we got to go back to the basics, connectorization, splicing, and things like that. The evolution path, and maybe this is also a bit of a partial answer to Sterling's good question, is that evolution path is not always a nice straight monotonically increasing line, right? That is why sometimes we talk about things forever, and then all of a sudden, they are the only thing that we are deploying. Okay? That help?
Other question?
Sure.
I went over to Tim Savageaux at Northland, taking it back to Ciena for a minute and talking about growth rates. I think they recently increased their target for something around double-digit growth, kind of going forward.
I think Infinera might have been targeting something similar or maybe even greater standalone as you guys have been together here for this month. What are you thinking about growth rates? Could we look for double-digit growth in optical at Nokia?
Yeah. This is the safe hardware type. We're not going to comment on business growth projections at this point.
This is the future, not the quarter.
I mean, the market is definitely growing, I guess, at a macro level. We are going to participate in that growth. I do not think they're going to comment more right now. Not right now anyways.
Not quite good.
Other questions? I think we have time for maybe one last at most. Jimmy?
I kind of wanted to hear a little bit more about how you guys are going to go forward on integration, get your sales teams sort of aligned regionally, your marketing. Just what's your timeline if we consider integration? Marketing is already integrated. What are you talking about? I mean, if we consider the close sort of day zero, what are we looking at going forward? Can you kind of map it out for me?
Yeah. That's a great question, Jimmy. There was a lot of—I don't know if you want me to start for the first time. There was a lot of work done in, again, to the limits we could in planning before the deal closed. But it's planning.
The way I would think that people should think about it is the sort of first 100 days after close is really moving those plans into execution with priority on a bunch of areas. Organization is one, as you alluded to, whether marketing, sales, service operations, and so on. The portfolio is another one. You heard Ron comment on when that started. There is a bunch of also detailed commercial activities that we were running as separate companies up until the 28th of February with separate offers. There is a set of work there and so on. There is a set of activities that really our focus is getting done at the very worst case in the first 100 days to get us back to the normal operating model and the operating rhythms that we would like to.
For sure, there's a lot of work after that that continues, but that's the way to think about how people are moving. As Manish pointed out, some of those organizational alignments have already been done. Others are happening probably as the discussions are happening as we're here. People are on all those key topics to get us started well, which to me is the key thing. We've got to start. If we're going to deliver well, we've got to start well. There's a lot of work going into that right now.
I would like to add from June when we announced the intention to acquire to December when we set the target to be ready just in case the approvals came early, which was very unlikely because February was unlikely, but December was impossible. Okay, we asked the team to be ready by December.
We had all the plan, the whole plan to see what we do. The plan consisted in what James is describing. We had a lot of things to do on day one. I have to say they exceeded completely the expectations. On day one, two minutes after I post to all the employees that we were the same company, I started receiving answers from people from Infinera with Nokia.com address. I could not believe that was happening. If everything was like that, it is going to be fantastic. In the first 100 days, we came here as a second objective with a portfolio with most decisions already made, which we did. Another organization, everybody went into optical networks, except for a few individuals, finance, legal, and David that is helping me with the strategic growth opportunities and a few people.
We are moving the rest of the organization in the first 100 days into the NI overall organization because we have three business divisions, but then we have a lot of central functions, including sales, finance, legal, HR, all the functions. The people get into those homes in the first 100 days. From then, execute. Things are going according to plan, and I'm really happy with what's happening right now.
All right. I think on that note, we'll close. I know people have to move. Thanks a lot for coming. Appreciate taking the time. Thanks.