It is no secret that ECI needs to be refreshed by a new technology to awaken the share from its slumber. But investors may have overlooked the company's XDM technology, due to be officially announced at the end of February at the CEBIT exhibition being held in Germany.
A few words about the relevant industry: long-term contracts between providers of services and customers in the telecommunications services industry, in which companies like Deutsche Telekom, AT&T, MCI, Worldcom, and British Telecom operate, are a thing of the past.
This has very important meaning: providers of telecommunications services are unable to predict how their networks will develop, and they therefore need flexible infrastructure that can adapt itself to varying customer requirements, within hours. Supplying broadband just-in-time, wherever the customer requires it, is the only way service providers can assure their competitive edge.
Where does ECI come into the picture? The company has a product that carries out a function, generally known as optic switching. Everyone has no doubt heard of Cerent, which was acquired by Cisco for $6.9 billion. In order to explain why Cerent "is worth" $6.9 billion, or why ECI's product is so revolutionary, a few technical terms need to be explained. Unfortunately, it's vital for understanding the product. After all, we're discussing high tech.
Cerent manufactures and markets an SDHSONET-based system that can be installed as a multiplexer or digital cross connect system.
The significant point is that SDHSONET protocol based solutions are not ideal for data communications, are not easily upgraded, are limited by bandwidth, and usually by a specific network structure. As we said, this is not what the providers of communication services are interested in.
Cerent's solution is currently designed for SONET based IP communications. The company already has substantial sales of more than $100 million in 1999. ECI's solution, still at the final testing stage, can also provide the ability to transmit data over ATM infrastructure, using SDH protocol.
ECI's system is expected to be a cost-saving system capable of handling 10 gigabytes of traffic. It will also have, of course, multiplexing and cross connect capabilities, offering communications providers flexibility.
The potential of this system, if it is launched on the market before the competitors', lies in its being almost limitless. This is the opinion of Merrill Lynch analysts. Cisco obviously didn't fork out $7 billion for a much less advanced system without reason.
Published by Israel's Business Arena on January 31, 2000