Ciena splashes $270m on datacentre networking specialist

• Ciena is on an AI-fuelled growth spurt right now
• It’s expanding its portfolio with the acquisition of Nubis Communications
• The startup has been developing optical networking technology for intra-datacentre networking, a hot new growth sector

With an AI-fuelled wind in its sails, optical networking giant Ciena is splashing $270m on the acquisition of Nubis Communications, a New Providence, New Jersey-based developer of optical networking products designed to improve intra-datacentre connectivity. 

Ciena is already one of the leading players in the long-distance and metro optical networking sector, which is growing at a furious pace right now as AI-related traffic volumes further fuel demand for greater data connectivity capacity, especially to and from datacentres. The demand for networking equipment that can deliver that capacity increase is fuelling Ciena’s current sales surge, with the vendor recently reporting a 29.4% year-on-year increase in revenues to $1.22bn for its fiscal third quarter that ended on 2 August. That growth came in the wake of a 23.6% increase in second-quarter sales to $1.13bn – see Ciena rides the AI wave as its Q3 sales grow by 29%.

And this isn’t a blip. The optical network equipment sector is set to grow at an average rate of 5% for the next five years and be worth about $19bn in 2029, according to research firm Dell’Oro Group. That’s good news for Ciena as well as the other main players in this sector, such as Huawei, ZTE, Fujitsu’s new standalone subsidiary 1Finity, and Nokia, which recently completed the acquisition of Infinera (an acquisition that is of relevance to Ciena’s M&A move, as we’ll point out shortly). 

But as all of these companies know, such growth is never sustainable so they need to diversify into relevant adjacent markets to line up future growth opportunities and that’s what Ciena is doing with its acquisition of Nubis Communications, which was founded in 2020 and which has raised more than $50m in venture capital backing.

Currently, Ciena’s portfolio enables it to address the optical connectivity requirements of network operators that provide data connections to, from and between datacentres (with the ‘between’ opportunity known as datacentre interconnect, or DCI). 

But AI workloads (in particular) are putting strain on the current electrical data networking connections inside datacentre facilities and there is growing demand for optical products that can enable ultra-fast data transfers using light to dramatically improve those connections. 

These intra-datacentre connections are split into two types, based on distance: ‘Scale out’ refers to the network connections between pods of device racks (distances up to 2km) and between the racks themselves (from 100 metres up to 500 metres); while ‘Scale up’ refers to the connections running between the compute, storage and switch devices within an individual rack (up to 10 metres) and the connections between the components inside those devices (up to 1 metre). 

This is where Ciena sees a future growth opportunity and where its latest acquisition fits in. “Nubis’s solutions complement Ciena’s existing high-speed interconnects portfolio and will enable new capabilities to support growing AI workloads by significantly increasing scale up and scale out capacity and density inside the datacentre,” noted Ciena in this announcement, which also includes an outline of the co-packaged optics (CPO), near-packaged optics (NPO) and electrical ACC (active copper cable) products that Nubis has developed.  

David Rothenstein, Ciena’s chief strategy officer, stated: “The acquisition of Nubis represents a significant step forward in Ciena’s strategy to address the rapidly growing demand for scalable, high-performance connectivity inside the datacentre, driven by the explosive growth of AI-related traffic. With ownership of these key technologies for a wider range of use cases inside the datacentre, we are expanding our competitive advantage by advancing development of differentiated solutions, reducing development costs, and  driving long-term efficiency and profitability.”

He went on, during an investor presentation, to outline the dynamics driving Ciena’s acquisition. “It’s no secret that the explosive growth of AI-driven traffic and workloads is transforming network architectures, especially in and around datacentres,” stated Rothenstein. “Cloud providers, including hyperscalers and neoscalers, are therefore working to scale connectivity in the back-end AI fabric architecture across three domains based on distance: Scale up within server racks inside datacentres; scale out between multiple racks inside datacentres that form AI clusters; and scale across between multiple datacentres that are geographically distributed and for massive AI super factories. This scaling, combined with power constraints due to energy consumption of growing GPU compute clusters, is driving a shift from electrical to optical technologies.

“Over time, coherent optics will play a larger role in the datacentre, similar to their adoption in wide area networks, as speeds increased to 100 Gbit/s. Today, short-distance scale up, up to a few metres, relies on electrical interconnects like electrical or copper cables, while longer scale out distances, up to several kilometres, use intensity modulated direct detect (IMDD) pluggables. However, both existing technologies face limitations. With electrical interconnects, the signal integrity degrades as data rates rise, limiting distance and performance. And with IMDD pluggables, bulky designs and power-intensive components like DSPs [digital signal processors] are increasingly inefficient. These limitations are, in turn, driving important technological shifts inside the datacentre,” he continued. 

“In both scale up and short-reach scale out applications, electrical interconnects are being replaced by co-packaged optics, or CPO, and near-packaged optics, or NPO solutions. CPO integrates optical components directly adjacent to the switch or compute host ASIC, reducing power consumption, latency and improving bandwidth and thermal efficiency. Some cloud and AI providers are already starting to adopt CPO to meet growing bandwidth and performance demands. NPO, which places optical components on the separate substrate near the ASIC, offers similar benefits, with added design flexibility for easier integration into existing infrastructure. Technology shifts will also be occurring in long-reach scale out in scale across applications. Here, IMDD pluggables will be replaced over time by coherent optical technologies, which deliver superior performance over extended distances. Overall, we believe that coherent optical technologies will evolve to play an increasing role in the datacentre architectures. However, we also believe that this transition will take several years. In the meantime, a mix of electrical, IMDD, co-packaged and near-packaged optics, and coherent solutions will coexist, with applications depending largely on performance requirements and capabilities. These shifts present a significant market opportunity, with early projections estimating the co-packaged optical and electrical interconnects market to reach between $5bn and $10bn by 2030,” said Rothenstein.

So the market still appears to be in its infancy, a view shared by optical sector analyst firm Cignal AI, but Ciena is getting in early. The acquisition should be completed some point before the end of Ciena’s financial year, which ends in January 2026, at around the same time as the Nubis products, currently still under development, become commercially available. Once the acquisition is closed, Ciena will have a ready-made set of companies to which it can pitch its new product set, as Ciena already counts the major datacentre operators as customers.

But, of course, it will face competition, including from its traditional optical networking equipment rivals, especially Nokia. When the Finnish vendor announced its planned acquisition of Infinera, it made clear that not only was it bolstering its metro and long-distance optical networking equipment portfolio but also gaining Infinera’s existing advances in intra-datacentre optical connectivity. Indeed, Infinera announced and showed off its “line of high-speed intra-datacentre optics based on monolithic indium phosphide (InP) photonic integrated circuit (PIC) technology” as long ago as early 2024. 

Other companies with their eye on the same market include Nvidia, Ayar Labs, which late last year raised $155m, Ranovus and Broadcom.

- Ray Le Maistre, Editorial Director, TelecomTV