Although the North American market is viewed by Ikanos (IKAN) only as the third in its importance, there may be some positive surprises from that region in 2008. In addition, since the company has only negligible sales in the US, every deployment they can get represent a completely new revenue stream for the company, who is still struggling to reach profitability.
Similarly to what happened in Europe, Ikanos was left out of the flagship VDSL project in North America- AT&T’s (T) FTTN deployment. This deployment is, without a doubt, the largest FTTN deployment in the world, as AT&T expects to pass 17 million homes by the end of 2008. It certainly does not mean that it expects to have an actual subscriber number that is even close to that figure, but the long term potential is huge. This time it was Conexant (CNXT) who got the lion’s share of the project mainly through Alcatel (ALU) on the CO side and 2Wire on the CPE side. It remains to be seen whether Ikanos will manage to get into this lucrative deployment, although so far there is no indication of that.
Ikanos is involved with what they describe as two “significant” deployments in North America. The company started mentioning these deployments already in the first half of 2007, claiming both should start towards the end of that year. One of these deployments is an FTTN deployment while the other is FTTB. I could not get any indication regarding the identity of the FTTN deployment, but Verizon is rumored to be the FTTB deployment. Verizon is expected to use a FTTB architecture for Multi dwelling units (MDUs) in metropolitan areas where 20%-30% (depends on who you ask…) of its customers live. The carrier has been promoting its FiOS services mainly in suburban areas, where pure FTTH is cheaper and easier to install. However, the feasibility of deploying fiber to each and every unit in high density metropolitan areas decreases, and therefore calls for complementary solutions. The company was expected to massively deploy FiOS in Manhattan already in 2007, but only marginal deployments actually took place. 2008 is going to be a much more aggressive year on the MDU front for Verizon, which will use multi-customer ONTs (optical network terminals) instead of the conventional ONTs it uses for single-dwelling unit [SDU] deployments. These multi-customer ONTs will be located in the basement and connected to customer homes using the existing infrastructure of the building. The portion of FTTB in such MDU deployments is still unknown, as there are other alternatives to reaching every apartment such as bendable fiber, and even where FTTB is chosen, Verizon could use CAT5 cables where available, instead of copper. Ikanos expects to get a substantial share of Verizon’s FTTB deployments on the CPE side as well as the CO side. On the CPE side, Ikanos secured a design win with Westell (WSTL), who published in May 2007 that it had been selected to provide its VDSL gateway to Verizon. On the access side, Ikanos has design wins with Tellabs (TLAB) and Alcatel-Lucent, both of which are expected supply the ONTs for Verizon’s FTTB deployments.
Qwest (Q) represents another VDSL opportunity although its deployment plans are merely as aggressive as those of Verizon (VZ) and AT&T. The carrier expects to invest $300 million over the next two years to bring 20Mbps VDSL to around 1.5 million customers. It is still unclear whether this is the second VDSL deployment Ikanos was referring to, but if it is, it will definitely be a very important growth driver. In the U.S, Ikanos depends on a very limited number of potential customers, whose actual plans regarding VDSL are still vague. It still remains to be seen if the two significant deployments in which the company is involved will actually bear fruit in 2008, and to what extent. There are, however,some encouraging signs.
In September of 2007, Ikanos announced another CPE design win with Gemtek, whose residential gateways have been “qualified by a major North American carrier”. One month later, during the Q3 conference call the company’s CEO, Michael Ricci, revealed that the company started shipping its chipset as part of a deployment with a major north American carrier, but didn’t provide additional details. A recently published article by Ikanos’ VP of marketing specifically mentions Verizon as a company who is “using” (present tense) VDSL2 as the last mile technology in MDUs. Finally, during an investor presentation this week, Ricci repeatedly and confidently claimed that Verizon does intend to use FTTB+VDSL for passing as much as 25% of its customers. Thus, although it is still hard to predict the potential of the US market for Ikanos, investors may be in for a positive surprise for a change…
Disclosure: Author is long IKAN