When a Standard Isn’t Exactly a Standard

I’ve noted in a couple of posts now that equipment manufacturers charge a lot more for optical modules they sell to end users than what they actually pay for them from transceiver suppliers. Considering the pains OEMs go through to “qualify” their vendors, a healthy markup in the early stages of a new product adoption can be warranted. But, I’m not so sure keeping it at more than 5x the price five years down the road can be justified. And is it sustainable? Some transceiver manufacturers sell products at gross margins in the 20-percent range, while their biggest customers (OEMs) enjoy more like 40 percent.

And guess what, there’s not much the suppliers can do. It is well known that Cisco, Brocade and others purchase modules, and now SFP+ direct-attach copper cables, from well-known suppliers and resell them at much higher prices. And if I’m an end user, I MUST buy these from OEM or their designate or my equipment won’t work. These devices have EEPROMs that can be programmed with what some call a “magic key” that only allow them to work with specific equipment. So the OEM now has a captive market for modules and copper cables going into their equipment, and so they can pretty much charge what they want to. If I try to use a “standard” module or cable assembly – one that is compliant to the specification – it will not work unless it has this “magic key.”

I’ve experienced this first hand. I had a brand new HP ProCurve Gigabit Ethernet switch that I wanted to use for some cable testing I was doing. I had dozens of SFP modules from all of the top transceiver manufacturers, but none of them would work in the switch. I called HP and they said, “You have to buy the HP mini-GBIC.” Well, I knew that wasn’t exactly true. I didn’t really want to pay the $400+ each for four more SFPs that I didn’t need so I tried to work through my contacts at HP to get a firmware patch so I could use my existing devices. Long story short, I never did get that patch and ended up doing my testing with SMC switches instead.

Prime example of when an open standard is not so open. Will data center managers be able to sustain this when they have to move equipment around and need different modules or cable assemblies? Are the OEMs thinking about the aftermarket and the fact that data center managers are used to going to distributors to get these items? And are OEMs going to continue to gouge end users and potentially cripple their suppliers?

One added note - there are at least two equipment manufacturers that I know of that support an open standard:  Blade Networks and Extreme Networks. While they will both supply the modules and cable assemblies, they don't lock out other standards-compliant parts that customers may want to use.

VCSELs – The Enabling Factor of Fiber in the Data Center

Optical technology proponents have argued for many years that fiber is about to take over all of networking. But, time and time again we have seen copper technologies reinvent themselves to serve at least the last 100 meters in LANs. But with the complicated digital signal processing that is needed to enable the 100-meter operation of copper comes a cost – power consumption. And in data center operations, power consumption may be the single most important issue still needing to be solved.

Before the EPA performed their study on data center power consumption and before the creation of the Green Grid, data center managers were worried more about running out of space than out of power. Now, with complicated electronics and the better utilization of server processing through virtualization, lowering power consumption has become more imperative.

VCSEL-based short-wavelength fiber optic networks may be the answer. As mentioned in a previous post, on a port-by-port basis, 10GBASE-SR devices consume four times less power than 10GBASE-T ones. And when you have thousands of these ports within your data center, the total power consumption adds up quickly. Stay tuned for further quantitative analyses of copper versus fiber in the data center.

Finisar is one of the leading manufacturers of VCSELs, and they sell the short wavelength transceivers to LAN and SAN equipment providers including Brocade, Cisco, QLogic , HP and EMC. While transceivers generally sell at very low margins, they are an essential part of keeping costs down and power consumption low in data center networks.

Contributing Analyst - David Gross.