Ciena eyes even more growth as optical market set to double – CEO

　　With hyperscalers doubling down on infrastructure spending and service providers catching up with past underinvestment, Ciena's earnings grew by double digits in Q1. What's more, CEO Gary Smith expects the optical market to double in the next few years, as he told Light Reading during an interview.

　　He pointed to trends like ongoing "opticalization" inside the data center and connectivity needs for AI training clusters, among others, as areas of emerging demand.

　　The "opticalization" trend is playing out with "direct connect" – private, dedicated, fiber-optic pathways – inside the data center, where companies are starting to be constrained by physics, "given the amount of GPU capacity and the speeds that they're running. It's really a matter of not if, it's when," Smith argued.

　　Optical, he added, is "the only technology that will address the scaling up, out and across at these kinds of speeds and at this kind of scale."

　　While Ciena has yet to make revenue from this area, Smith was confident it represents a big opportunity. "If we're right about that – but I think things like the Nvidia piece provide further validation – that's a big space." He was pointing to Nvidia's investment in Lumentum and Coherent that was announced at the start of the week.

　　Nevertheless, he acknowledged that there will be a period of transition and that there will still be applications that will be using electrical connection for direct connect.

　　This is part of a broader trend of booming demand in the market, according to Smith, including opportunities in and around the data center. "The whole optical market has always been like $12 [billion] to $13 billion since the last sort of decade. I think it's completely disrupted that. And I think, given all that we're seeing... it's likely going to double the size of the market over the next few years."

　　What's more, he argued that growth in the market is sustainable over the next few years as traffic continues to grow. "I think now it's all about the network. Network is the new power," he said.

　　AI training needs

　　Ciena also sees a big opportunity in the recent trends in AI training. Because of space and energy constraints, GPUs are now being clustered with other sites, which creates new demand. "We started to see that at the end of last year, where they're actually connecting these in sort of virtual clusters for their training algorithms, and that's just beginning," he told Light Reading. "In baseball terms, we're just getting on the field."

　　At the moment, "it's hundreds of millions of dollars of orders that we've got that we're now rolling out, and we're continuing to see additional sites being added on some of those."

　　During the earnings call, Smith pointed out that all four hyperscalers are planning a "step-function" increase in capex this year, which is set to reach a combined $600 billion, driven by infrastructure needs related to AI training and inferencing.

　　Overall, Smith argued that there has been under-investment in the infrastructure related to AI, relative to other elements.

　　Meanwhile, there is also a continuing trend of service providers catching up on what Ciena considers around five years of underinvestment in optical networks. And their demand is also going up because of the trend in managed optical fiber networks (MOFN) for hyperscalers, especially outside of the US.

　　This all translates to very strong financial results and more to look forward to. Revenue was up 33.1% in the first quarter to $1.43 billion, while EBITDA soared by 83.6% – in non-GAAP terms – to $287.3 million. The biggest constraint seems to come from supply chain issues.

　　"To be blunt, our revenue in the first quarter would have been higher, but for these constraints," CFO Marc Graff said during the earnings call.