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Support for the show comes from CrowdStrike. It's not a huge stretch to say that AI is the next major computing platform. Every platform shift changes the way we build software, and it changes security, too. CrowdStrike is defining cybersecurity in the AI era with AI detection and response, or AIDR, a solution for seeing, monitoring, and securing AI across the enterprise. Learn more about how leading companies are turning to CrowdStrike to secure AI and secure their business at crowdstrike.com slash decoder. Hello and welcome to Decoder. I'm Neil I. Patel, editor-in-chief of The Virgin. Decoder is my show about big ideas and other problems.
Today, I'm talking with Gary Smith, CEO of the networking company Sienna. Now, you are probably not familiar with Sienna. The company isn't a household name, but you have used their products. In fact, every internet user has used their products. Sienna makes the hardware and software that lights up fiber optic cables with data. That's everything from local fiber networks for broadband ISPs to the massive undersea cables that connect continents.
In fact, there's a very high probability that this podcast itself came to you over a Sienna-powered network. This company is everywhere. And Gary himself is a fascinating character in this story. He joined Sienna in 1997, the year the company had an astonishingly successful IPO in the middle of the dot-com boom. And he became CEO in 2001, right after the dot-com crash sent the company's stock price and the rest of the economy into a tailspin.
So Gary's had a front row seat to the development of the internet as we know it. And Sienna has been there every step of the way, as telecoms and undersea cables first brought the planet online, all the way to the rise of things like cloud computing and now generative AI. Sienna is built around a core technology, and you're going to hear Gary and I talk about it a lot. It's called WDM, or Wavelength Division Multiplexing. And it's absolutely key to how the modern internet works, even though most people have no idea it exists. The basic idea is that WDM uses multiple wavelengths of light to fit more data onto a single fiber optic cable, which allows those cables to deliver more and more information over time. You'll hear Gary call it virtualizing a fiber optic cable, like you're turning a single cable into two or five or ten.
This is obviously hugely important as the world's internet usage increases, and data-hungry applications like video and generative AI ramp up. Sienna didn't invent WDM, but it was the first company to deploy it commercially in the 90s, and I wanted to know how Gary was managing his investment and pushing that technology forward, and whether he was thinking about the next kind of technology that might disrupt it. I also wanted to know about Ciena's customers. There are only so many companies building deep-sea cables in giant data centers, and it won't surprise you that Ciena's customers have largely shifted from telecom providers and ISPs to giant cloud companies like Meta and Google and Microsoft over the past few years. In fact, just a few months ago, Meta announced it would pay $10 billion to build its own exclusive subsea cable stretching nearly 25,000 miles. Ciena sits right in the middle of that complicated relationship between industry and infrastructure, and I think you'll find Gary's perspective to be pretty unique.
And of course, that led us to talk about the fracturing state of the internet itself and what it means that people in different countries, depending on different levels of government control, experience the internet differently. Connecting cables that stretch across continents means people on the other ends of those cables might have very different ideas about the internet. And Sienna has to take that all into account. See, I'm guessing you didn't know about Sienna before, but almost every single decoder idea is right here, sitting on the backbone of the internet. Okay, Gary Smith, CEO of Sienna. Here we go.
Gary Smith, CEO of Sienna. Welcome to Decoder. Thank you. Good to be here. I am very excited to talk to you. The Decoder team and I were talking earlier. We love stories of hidden companies that run the world, and Sienna very much feels like one of those companies. It is a huge player in networking. It's a huge player in the future of our networks. There's some AI to talk about. There's undersea cables to talk about, which is always fun. Quickly for everyone, describe what Sienna is and what it is you do. Basically, Sienna is the leading technology company in the world for providing high-speed connectivity. So you think about all the networks that have been enabled around the internet, et cetera, around the world, submarine cables, as you alluded to.
Sienna is really the driving force behind that high-speed technology, even mobile connectivity, terrestrial connectivity, submarine cable connectivity. And we're basically the best in the world at moving optical bits. I always think about it as two internets, right? There's the internet we experience, the digital internet, and then there's the very physical internet, the actual cables and wires that connect our networks together, that connect us together. That is Sienna's business, right? Running these cables, figuring out how to move data across them more quickly, figuring out how to move more data across them. Sienna's been around for a minute. How is the dynamic between what people are doing on the digital internet most consumers experience?
and what you need to do on the physical internet change? Because it seems like something we don't ever really get to talk about. I'm very curious to ask you about it. You know, we consume most of the internet now, you know, in a mobile form, you know, on our iPads and iPhones, whatever, you know, we still have some desktops, but, you know, it's all laptops. The first point of connectivity there is mobile. So, you know, it's available to us all the time. But what we don't think about is it's only mobile until it's not. And basically, you know, it needs to get terrestrialized to the nearest, basically, area where it comes down into the terrestrial, typically, fiber.
To get really high speed, you need to use fiber. Wireless has some limitations around that. So basically, until it gets to any mobile application, it's really objective is to get terrestrial into that cell tower as quickly as possible. And then from the bottom of the cell tower, basically, is when all the magic starts of the physical fiber cables and the networks that go around the world for that. And if you have an inquiry, depending on what it is that requires a different continent, that goes down through the cell tower and out across the sea and back to you.
But that's all invisible to us all, and we're able to do it at such high speeds now that it's transparent to the applications that you're using. That's the part that I really want to dig into. I think sort of intellectually, I've always understood that. I think most people understand that there are servers and data centers elsewhere, and we are communicating with them somehow, invisibly, wirelessly. But at some point, we need to hit a fiber line and actually talk to the servers. I guess what I'm trying to understand is there's the consumer application layer of the internet. We're all going to watch a bunch of Instagram reels or something. And then there's the internet we need to build to support that. What's the relationship between those two? How often do you think, OK, I see the next set of applications that are coming on phones, or I see the next set of devices that people may want to use, or I see the rise of streaming services?
we had better start building an internet that can support it. Because that dynamic often seems subsumed in maybe some cell carrier conversations or maybe some data center conversations. It very rarely, I think, comes to the forefront. Well, because it's the piece that connects all of this stuff. Everybody focuses on things like, you know, AI right now, or, you know, be it the Netflix or whatever. And it's just how do you get those things to manifest itself to, you know, the consumer and to enterprise. You know, the reality of that is it requires a massive build out over the last two decades for, you know, that fiber infrastructure, basically, that connects all these data centers together, that connects them through submarine cables, connects them, you know, across countries.
And it's got the intelligence on it to be able to know where to go get that information. And that has evolved over the last two decades and continues to be, you know, evolved because you think about some of the business models that we now take for granted, you know, like Uber, you know, that wouldn't be available if you couldn't get instant, you know, response to it. Now, 20 years ago, that would not have been possible as a business model. And, you know, there's an interesting point in time here, Nile, where... there was this massive overbuild of fiber capacity in the early 2000s. And it was sort of a telecom, you know, nuclear winter then where we had more capacity than apparently we'd need for the next two decades. And, you know, people built out all of these large fiber networks and sort of no one came. But they did really because that enabled business models to take, you know, large amounts of bandwidth at low cost. And that created business models like Amazon.
you know, which weren't able to get stimulated and to be sustainable until they had large amounts of dependable connectivity. And so, you know, it's constantly evolving where, you know, you've got applications that are demanding much higher bandwidth. We're into an era of that now with AI, for sure. And then the networks have to kind of catch up and facilitate that. Let me ask what the networks say. Let's say I want to build a network. Do I, you know, in some rural part of the country, do I just call CNN and say, all right, we're going to...
Get to work. Go dig some trenches. Do I run the network? Do you run the network? How does that work? We basically don't run the network. Those are the service provider carriers. And they can be, if you take North America as an example, there's hundreds of carriers that do the local last mile piece out in the rural areas. And then there's obviously the Verizons, Comcasts, AT&Ts of this world that then facilitate all of that connectivity to the consumer and to most of the enterprises. We provide the technology that powers their networks, basically. And so for them to get that high-speed connectivity.
It's Sienna's technology that goes on the ends of those fiber cables that allow the speed and throughput and continue to drive the capacity. And what we basically do, on a single piece of fiber, we virtualize that fiber. So instead of having that little thread, which is about a hair thread in weight and distance, basically we can multiply that many, many times. So hundreds of virtual fibers because of the technology that we use around it. And that's enabled the whole scaling of the internet. It's enabled the scaling of this global connectivity phenomenon that we have.
And it's at the center of scaling for AI connectivity now and into the future as well. That core piece of technology where you're multiplexing and virtualizing a single piece of fiber, right? That was Sienna's sort of big technology bet. I believe it's called WDM. Explain that to people just very quickly. It is the virtualization. So where you've got one piece of fiber, it makes it look like multiple fibers, you know, and we can, you know, depending on the distance and what you're putting down it, it can be, you know, hundreds of fibers, which is actually physically manifested as a single fiber. And so, you know, you don't need to put more fibers into the ground, et cetera. You can just, you know, with the technology we have either end of it, scale it up. So it's the virtualization.
of fiber, which has really enabled this, you know, almost seamless marriage between the applications, to your point, the driving of all the network traffic with the actual network. And, you know, we've grown through our technology development, the ability to go do that faster than Moore's law. So, you know, we now have a new piece of technology called WaveLogic technology that can do 1.6 terabits of data down a single piece of fiber. It's always been explained to me that... The fiber is the fiber. We're just sending light back and forth. And it's the pieces at the end that actually create the additional bandwidth that create the additional capability. Is that more or less true? Or are you really just focused on the bits at the end that talk to each other? Yeah, absolutely. Now, you know, there are technology developments within the fiber, you know, for sure, you know, that help and assist that. And there's been a lot of that development from companies like Corning, you know, in the fiber world. But it's basically the magic is the technology that goes on the end of those fibers. Because when you think about it, if we had to scale.
By digging up the place every time we wanted to put more fibers in, then it's just not practicable. But even on old fibers, we can get a tremendous amount of expansion and virtual capacity by just putting our technology on the end of it. You're talking about scaling faster than Moore's Law, which is roughly a doubling every 18 months. Decoder listeners are very pedantic. They will tell me that's not actually what Moore's Law means, but I think that's how you're using it. And I appreciate our listeners very much. I think that's not what, I don't think that quite applies here, but you're talking about a doubling of bandwidth every 18 months. That's what that feels like. Yes. And WDM, you've been running it since 1997, right? This is the technology better than the company. Is it the capacity of WDM, where you're using multiple wavelengths of light across a single fiber, is it that what's doubling?
Yeah, it's our ability to continue to drive that. When we first started, we could multiplex, keep it very simple. It was a single piece of fiber. We thought we could put four virtual fibers down there. And that was revolutionary at the time. And many of the carriers we went to with that said, oh, that's fantastic. We'll never need more than that.
And then we figured out how to do eight, then 16, then 32, then 64. And then, you know, we're way, way beyond that now. So what that means is, you know, you have that single piece of fiber that looks like 64 fibers. And that's enabled this massive scaling of the architecture around the world. And then we deploy that technology nearly not just in the local connectivity, but in the long distance, you know, cross country, then across whole continents, you know, 8,000, 10,000 mile submarine cables. We can support that kind of capacity across the submarine cables.
And do you just sell these boxes to the telecom providers and the data center providers and walk away? Do you have ongoing support? No, it's a very integrated partnership. You know, most of the major carriers, like 96% of the major carriers around the world are, you know, Sienna customers. So it's a collaboration that we've worked on for, you know, multiple decades. And we help manage the networks. We, you know, we do a lot of the installation work for them. You know, we do the planning. We have the technology, the software that actually manages the network as well and looks for predictive issues of challenges and switches automatically. If there are problems on certain fibers, it will detect that and switch it through.
So there's a lot of underlying technology and collaboration between us in all the service providers. And also all of the hyperscalers, you know, pretty much all of the hyperscalers use Sienna to connect their data centers around the world. And we partner with them as well on technology developments that are specific to their networks. Because these networks are now, you know, you look at the hyperscalers, some of the largest networks in the world. And they're very complicated, you know, multi-continent, metro, long haul, submarine cables. You know, the biggest players now, the biggest owners of capacity.
on submarine cables is actually the cloud players. And that used to be the traditional service providers. But now it's the likes of Google and Meta, et cetera, that really own a lot of the global capacity on those submarine cables. This is the thing that I was talking about at the beginning. It just seems so hard to understand. And it's so interesting to talk to you about it because you're in it. The internet we experience is obviously changing the dynamics of the internet we build.
So I experienced my phone and there's a bunch of stuff happening on some data center owned by Google or Microsoft or whoever. And that means those companies now own most of the capacity of undersea cables. And that chain of events, I think, is not intuitive unless you're paying attention to it. But just talking to you for 13 minutes here, that seems very intuitive to you. It makes sense to you that they would have the capacity because I'm not sending nearly as much data as a consumer across the ocean. Do you see that changing? How fast has that grown? Describe that dynamic to me. So that dynamic, I mean, you take the submarine cables as an example. It's a good proxy for what's happened here.
From the 1980s right the way through to 2010, this was all funded by the service providers. So it was a way of getting transatlantic, you know, largely to Europe, a little bit to Asia, you know, transatlantic phone conversations. And so they'd have these cables and they would get together as consortia between, you know, these companies like British Telecom, AT&T, and they would, you know, as a syndicate, you know, fund these submarine cables. Now with the advent of cloud, you know, you've got these players who wanted to have very high speed connectivity. If they're going to be in the European market, you take for the example of, you know, Meta or Google or Microsoft or any of these players.
they needed to have very high-speed dedicated capacity. So you began to see in about 2010, the cloud players, A, purchasing the capacity of those submarine cables. And in the last more recent five years or so, you've seen Google actually begin to own many of these cables, and Meta and others too to it. So it's evolved from, hey, it's all this service provider and it's just phone calls. When you want to reach your aunt in Europe or in India or whatever, then it's just a phone call, which is a very small amount of data.
The amount of data that's now being required by these cloud players is multiple more times than that. And you've got a lot of graphics going over it as well, which takes a lot of bandwidth. So the need for bandwidth has grown dramatically. And it sort of makes sense that the cloud players who want to connect their data centers, if they're putting a data center in India and they want to connect it to North America, they want to own the connectivity for that. And it's a much higher speed. So they're not just buying the capacity, nearly. They're actually taking control and owning the cables. So there's been a sort of a...
You know, an evolution of that over the last five years, first 10 years was, hey, we'll take the capacity. Now they want to actually own, you know, now their networks are made up of a hybrid of typically where they own the cable or they own some more, you know, they rent it from, you know, the service providers. But you've now got, I think, 600 plus cables around the world, submarine cables. You know, we've got about one and a half million kilometers of fiber at the bottom of the sea facilitating this. And the cloud players are really driving that marketplace now.
And I think that's going to lead us into the inevitable conversation we'll have about AI. But I just want to stay on this for one second. That verticalization from what we sell is virtualized compute capacity down to we will now own the cables in the ocean and verticalize our business and make sure we own it tip to tail. How has that changed your company? We're looking at, OK, there's WDM in 1997. This is the core innovation that lets us get more capacity out of the fiber networks. We're initially going to sell that to telecom companies, maybe to do more phone calls or the early internet. Now, multiple generations in, we're selling it directly to Google.
to connect data centers so that we might run AI workloads. It feels like that would have some pressure on your roadmaps and your go-to-market. How is that expressed? The evolution has been such that, you know, the first depreciators for that kind of technology was obviously the service providers. And as the internet began to gain traction in sort of 2003, 2004, this whole sort of model, you began to see the cloud players get more interested in the network because if they're going to basically monetize and get to, you know, the eyeballs that they wanted, the network becomes actually important to them.
And so there's been, I think, a steady increase in appreciation of that, even prior to the AI piece. And so they've become much more active. I mean, some simple ways of saying it, we really didn't sell to the cloud players until about 10 years ago. And we had zero market share in there. Now we've got, you know, the main market share with a leading player in connecting data centers and cloud players around the world. Submarine cables, same kind of thing. I mean, our technology, you know, we really didn't focus on the submarine cables because there wasn't that much capacity being required. We've now got number one share in submarine cable connectivity around the world because they value very high speed capacity. And so, you know, the cloud players have gone from being, you know, very small percentage of our business to now both directly and indirectly over 50% of our business is now basically cloud and hyperscalers.
So it's a very significant shift in business. And that's really accelerated in the last five years. We need to take a quick break. We'll be right back. Support for the show comes from Quo. You know when you're juggling five things at once and your business phone rings and you just let it go? That call might have been your next best customer. That's why today's episode is brought to you by Quo, spelled Q-U-O, the business phone system built so you never miss a call. All your calls, texts, and voicemails live in one place so anyone on your team can pick up a conversation, see the full history, and respond fast. More than 90,000 businesses rely on Quo to stay reachable and look professional every day. Setup takes minutes and you can keep your existing number and add teammates as you grow.
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I think it's a great time to ask the sort of classic decoder questions. You're describing a shift in the business, a shift in your customers. How is Sienna organized now? What does that look like? It's been easier for us in some ways because we've always been a leading technology company. So, you know, it's really about who appreciates that technology and collaborates. So, you know, this shift to, you know, the submarine markets and to the cloud players generally, you know, has been a good fit for Sienna because we move very quickly. We're at cutting edge technology. You know, the latest technology we have is actually on three nanometer chips. We were the first company in the world to have a three nanometer chip actually be used in the telecom space.
And we're actually now working on our second. We've got that out. It's carrying traffic around the world. And we're now working on our second version of that. So we've always been at the leading edge of technology. So it really is a natural fit with these cloud players. And so we're organized very simply. We have a large service provider team around the world.
And then we have a dedicated team for the hyperscalers and cloud and an engineering team that works with them on the co-development and stuff of that kind of technology. So actually, I'm a great believer in simplicity of organizational design. So we have a very simple organizational structure that's evolved to address that. And that's how we're able to scale as quickly as we have. You've got the two big markets, the telecoms and hyperscalers, and you have the engineering organization. I'm assuming the telecoms and the cloud providers want different things. How is that expressed in what the engineering organization goes off and builds?
It's interesting. There's a lot of commonality about what they want. So if you think about it from an engineering point of view and the latest wave logic technology that we've just developed, we actually take that same technology and we deploy it in slightly different variants to them, actually to both markets. So we get better scale of development over that. Obviously, you're developing a single chip and then we do variants of it for specific applications that they want. But essentially, that same technology is consumed across the service provider world because they all want the same thing. Basically, better economics across the fiber that they've got and increased...
bandwidth. Now, the particular sensitivity, I would say, what's really the difference between the two markets is the cloud players are much more focused on power, which we all hear about from a data center point of view. It manifests itself exactly the same way in the telecom networks. And so we do do variants that are power optimized for the cloud players, but that's the predominant difference. But that's really...
just taking the same core technology and just, you know, doing a different variant of it that's prioritized around power. So that enables us to scale the development and the rest of it. So we have a single global engineering team, you know, focused on this core technology. And, you know, Sienna, you know, has always been a very focused player. You know, we've been very focused on just high speed connectivity. And this has, you know, enabled us when most of our competitors are trying to do mobile or, you know, other kinds of things, you know, for the past three decades, we just want to be the best in the world at moving optical bits.
at a high speed. And the opportunity we have now as well is increasingly into the campus and potentially even inside the data center as well with that same core technology. And that's all in front of us. We get zero revenues from there right now, but it's the same customers that we have an opportunity with. So that's an exciting opportunity for us in the future. I want to talk about that a little bit more, but can I just ask one more question? You said power. That suggests to me that you're building a data center, you have an energy budget, and then you hold all the vendors to some number on the line to make sure you hit your energy budget. And you're feeling that too, even as the person who's just like, here's the box that connects to the fiber line.
Yeah. So, you know, that same mindset, they have the same, you know, it manifests itself differently, obviously, but anybody talks about the data centers and the power and the rest of it, that's, you know, everybody sort of, you know, is very focused on that for obvious reasons. But that same issue deploys when they come out onto the network too, because, you know, you're looking at basically you amplify, you put amplifiers on the fiber to do that. And these amplification sites, they want super low power because they're constrained around power and space. Right. I'm assuming they would rather spend their power budget on running the GPUs as hot as they can.
Exactly. They don't want to spend it on the communications part of that, or they want to spend as little as possible on that. They want it optimized. And so we're able to do that for them. So both in terms of the footprint of the technology, I mean, we can now get down on a single plug, what used to be a rack of cards, quite literally a rack of, you know, a six foot high, you know, wide rack. We can now get on a single plug.
that same capacity. And that's what we've evolved over the last two decades with. And so we're well-placed with these guys to continue to drive down the usage of power on the network, not just in the data center. How big is CNN? How many people are in all these various teams? We're close to about 10,000 people worldwide. We're very distributed. This year's consensus revenues is about 4.4 billion, something like that. And we're profitable and we have a strong balance sheet. We very much invest directly into this technology. And because...
We've been such a focused player at it. We felt that eventually that would be appreciated, this high-speed connectivity. And it's really coming into its own now because you have to make these investments for the long term. Some of our technologies take five years plus to evolve. And so we're fortunate in this time right now. It's a good intersect point where that high-speed technology is super appreciated. Is that even split?
3,300 in engineering, 3,300 in hypersaler sales, or is it? No, it's basically predominantly engineering. You know, as you can imagine, this kind of technology is more about the engineering side. So more than half of our team are engineering talent, as you'd kind of expect. You know, and then we've got applications engineers at the front end that, you know, help, you know, make sure that we understand the applications and work with the customers on that. But, you know, more than half is engineering. As I said to you earlier, it's a very simple structure. One of the things that really strikes me is there is this core enabling invention, right? WDM, the company's built around it. CNN's made a few acquisitions over the years.
led a few of them. There's one in 2019. Is WDM still the heart of it? Is that proprietary Sienna? We're building around it. Is there a next way to use fiber that's coming? No, I mean, it's basically the journey that we're on. And, you know, we've made multiple acquisitions, you know, but really it's all been about, you know, the core mission, which is really high speed connectivity. And, you know, what are the things we need around that? A lot of the acquisitions have been around vertical integration of that. So we have more control over it. You know, it's not just the core technology, but it's the things around it that you need to do.
Most of those things were where we could focus and we think provide competitive advantage by doing something to it, you know, the surrounding technologies. And so, you know, over the years, we've worked very carefully at acquisitions and organic developments that make us vertically integrated so we can control that. And it's not, you know, there's advantages to control and scale. But what really drove us was the fact that we think we can, you know, put competitive advantage in each of those technologies that we gather around the core technology, if that makes sense. The reason I'm asking that is because often you might want to buy a company that's early to the next turn. But it seems like WDM is still the heart of what you're doing. You don't see a finish line there. No. I mean, basically, it's this technology. The actual variant that we focus on is the coherent technology. And that's what, you know, has enabled this EWDM to scale so much. But there are other technologies around it as well that we've developed, like the SIRDES, which is the serializer, deserializer.
and those kinds of things, which is the analog conversion, which is incredibly difficult to do. And we've got some of the best technology in the world around that. So it's the moat that you put around that. But it's not the next thing. We think this has a lot of headroom. And particularly, this technology is all deployed right now. Think about it outside the data center. So as soon as it presents to want to come outside the data center, that's Sienna.
The opportunity with the same kind of technology that we've got is now becoming apparent in the campus, which is these campuses are getting super big now. And then eventually inside the data center, because you think about the GPU and the compute investment that's going on, that requires higher and higher speed over longer and longer distances, even in some of these data centers. first of all, they're enormous. And you've got fiber going around them, sometimes, you know, multiple kilometers, even within a single data center, because that fiber gets wrapped around. And so we think there's an intersect point, you know, nearly for our technology there, because the technology there right now, which is called direct connect, which is what's required to connect all of the, you know, the racks within the data center and the intro data center. The physics of that is getting very challenged as these GPUs require higher and higher speed. And so we think there's a real opportunity for us to intersect that, you know, to your point.
with exactly the same kind of core technology, requires some variations on it over the next, you know, one to three years. Let me ask you the classic decoder question, and then I want to get into that. You've been at CNA for a long time. I think you've been there 30 years. You've been the CEO for almost 25 now. How do you make decisions? What's your framework? Depends on what kind of decision it is, right? I mean, you know, not all decisions are equal. I very much feel it's a team game.
So when we make strategic decisions, which I think is what you're really sort of alluding to around how we invest and what are the long-term things that we're focused on, we're very strategically aligned around what we want to go do. We're a very focused company, back to the point I was making earlier. I think people appreciate best of breed and we want to be the best in the world at what we do here. So the North Star is very clear to us. And then it's about what are the things that we need to do to get out into the future on that. So from that point of view...
decision-making is somewhat easier because we've framed, you know, or we've, we've chopped the field. So we know where we're playing on. There's not some great conversation about some adjacencies and things that, you know, we might want to get into. So it's all based on our, on our core technology. So to answer your question, if it's something strategic around those investments, it's always a team game. And, you know, we're super collaborative is how we, we work and getting cross-functional input into all of those things. So it's a process, but I would say as well that, you know, I think the role of a CEO sometimes is to say, okay, we've had the debate. This is the overall perspective of what we want to do. Let's go.
you know that's part of the role of the of the ceo is but it's really to facilitate the best conversations and discussions and then help you know drive to uh to help drive to a conclusion let me just give you a hypothetical that I suspect you will shrug off, but I'm going to try anyway. You're looking at two big groups of clients, right? You've got your telecom companies, you've got your big cloud providers who are all racing into AI. You have some opportunity to grow that business by going into the data centers, not just landing the fiber at the doorstep. That seems like the much richer opportunity. I look at the state of the telecoms in the United States, for example. They're not growing much, right? They're churning customers between them. It would seem very obvious that your entire team would say, don't worry about them so much. We need to put all of our focus on the AI providers because that is where there's growth using our same core technology.
But then you still have to service the telecom customers, I imagine. How do you balance that out? How do you make that decision to say these investments are going to go over here? It's actually much easier for us because, you know, back to the point I was making, it's the same kind of core technology. So the things that we, you know, when we move the ball down the field for the cloud players.
We can apply that into the service provider space because it's the same core technology. So, you know, in terms of their needs, there's actually a lot of similarity around it. So, you know, when we start talking about the data center and the rest of it, another way of thinking about this is we provide optical systems where we do the whole thing for them, you know, the service providers. And we do that pretty much for the cloud players too. So we do all of the systems for it, the software, what we call the WDM modem technology, the line systems. We do all of that and very often we'll install it, support it, maintain it. We do that for service providers and we do that for the cloud players.
And then the point around the opportunity in the data center, it's not necessarily providing those complete systems, but it's taking them and putting them in plugs and then putting them in components. So it's a different kind of play, but it's still the core technology. So anything you do to advance that... also applies to our systems business. And our systems business is both service provider and in the cloud. So you don't have to make the, you know, which is your favorite children, you know, kind of where you're going with that. And I think, you know, that's another benefit of a company staying super focused on its core technology and understanding, you know, what value do we bring to the world that is very difficult for anybody else to replicate. Well, can I ask you about that? Because it feels like...
The Trump administration is incoming. By the time people listen to this, I suspect he will have been inaugurated. We'll be off to the races with a new kind of business climate here in the United States. Mergers will be in fashion. Again, they have not been in fashion for the past four years. If I was running Google or Microsoft, I would say, well, this is the core technology that's going to make my data center more efficient and move data faster. I'm just going to buy this company. Have you been approached to be acquired? I'm just wondering, because I can see why over the past several years, all of that conversation was chill. But it's also remarkable to me that a company like Sienna has remained independent for 30 years.
Well, I mean, I think, and that used to be the conversation all the time. You know, when Sienna started, I mean, think about, you know, 20 years ago, I'm not sure some of your viewers here will remember some of these names, you know, Lucent, Alcatel, Nortel, you know, even Nokia. These were, you know, the model was all what I call the generalist model, which was, they were actually spin outs from their phone companies, you know, like Marconi, Northern Telecom came out of Canada. So, you know, the model was, we had to be end to end. You had to put switches, routers, handsets, mobile infrastructure, and this thing called transport.
We said, you know, when we started, no, you know, we're going to just focus on the transport piece because we think it can get to scale. And what's happened over the last two decades is the generalists basically because they couldn't afford to be at the cutting edge in each of those areas. of all struggles. And, you know, you trace the genesis of all of those companies now, and basically they're all in Nokia, you know, it's Alcatel and Lucent and all the rest of them are all, the music stopped and that's where they ended up. You know, and the point I make about that is the whole system, you know, the whole end to end thing, you know, and being a generalist supplier, the world's too competitive for that now. It just absolutely is. And they used to say to us, well, when are you going to get bought? And we used to say, you know, listen, we're a public company. We have all the fiduciary, you know, responsibilities that you would expect with a public company, of course.
You know, we think we can get to scale and be a real company, you know, just doing what we're doing. Now, you know, these things take a while and we've been, you know, public for 25 years, but we're at a point now where we absolutely have scale. You know, we're very strong financially. We can invest in this kind of technology. We've got number one market share in all the key markets that we want to play in. So, you know, we've got a good opportunity to drive shareholder value from here.
Do you think that DWDM, the multiplexing you do to virtualize the fiber, is that enough of a moat? You're describing the other acquisitions you've made and how you surround the core technology with other things to enter different markets is the moat. But is that core technology? Is that something that if Mark Zuckerberg woke up one morning and was like, screw it, I'm open sourcing it, he could just do it? Or is that too specialized? There are other companies that have variants of this technology, for sure. It's just that we're able to implement it faster and quicker and better than anybody else. And we have the core competencies around it. You know, a bit of analogy is saying TSMC. You know, I mean, people kind of know how to do it, but yet they can't.
Do it. You can go to ASML and ask for a machine. Because it's people. And, you know, it's the folks that understand the 5-10% on each of these areas that really make the difference to things when you put it all together and the other things that we've built around it. So it's like any of these things. It's a confluence that make up, you know, the competitive advantage. It's when you get down to the real technologies. So, you know, it's all of those things that provide, you know, the moat for us and the fact that we're focused and the fact that we're now so embedded.
with these key cloud and technology companies that were part of the collaboration process around the evolution of their networks and the relationships that you build up, that trusted relationship and the technology collaboration over time. And that's why we think we've got an opportunity to take that into essentially a whole new market for us of the campus and eventually inside the data center. We need to take a quick break. We'll be right back. You know, Kevin, sometimes I feel like computers are the only thing around here that are getting smarter. Yeah, my model hasn't had an update in a while. But that changes now. We think that we can smarten these listeners up about all things related to this crazy new future. Welcome to Machine Gods, a new NPR podcast that will be your guide to the AI future. Twice a week, we're going to help you get smarter about AI so you know what's real, what's hype, and what you should probably install on your phone. Listen to Machine Gods from NPR on the NPR app or wherever you get your podcasts.
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To learn how to put AI to work for people, visit servicenow.com. We're back with CNA CEO Gary Smith. Before the break, Gary and I were talking about how CNA has managed to remain independent and so dominant in the market for so long. But I also wanted to know how much the geopolitics of big tech, especially around AI and the physical infrastructure of the internet, is something he has to worry about. I want to talk about two things that seem like they're going to happen to the hyperscalers in particular over the next four or 10 years. One of them has a lot to do with subsea cables and the other one is obviously AI. Let's start with subsea cables. If I look broadly at our nation's big companies, Amazon, Google, Meta, Apple, they're about to enter into a world where an emboldened Donald Trump wants to just reset the international order. And then they own cables that connect our continents together. There's a lot of people who want to break the internet apart in different ways. We might ban TikTok. We might not ban TikTok. China doesn't allow our apps there. There's a lot of interest in...
what is happening on our networks that connect our countries together and who gets what where. And then there's just the reality of they are wires in the ground. Like bad things happen to them. They get cut. There are wars. How much of that do you engage with personally? How much do you think about, okay, there are some fraught geopolitics that are about to change. I need to make some decisions to get ahead of it or be aware of it or insulate myself against it or insulate Sienna against it. How much of your time do you spend on that?
Well, listen, I mean, you know, it's sort of under the headings of things you can control and then things that you can't control but need to be mindful of, right? And so it's definitely in that second list. You know, listen, we've had over the last sort of, you know, I could argue five, 10 years, you know, quite a lot of geopolitical dynamics going on. We are mindful of that, particularly being, you know, we operate in multiple countries around, you know, pretty much around the world. So 80 countries around the world. Our technology is widely deployed. You know, we are mindful of those kinds of dynamics. And I'll give you an example of it. We made a decision in the early 2000s.
that we would not go in and be a provider to the Chinese market for their major service providers. Now, there was a whole set of thought processes that went into that. Bear in mind, one of our competitors at the time was Huawei. And they were just emerging. And I don't think people appreciate this. The first real...
iteration of technology that Huawei came out with was actually in our space. So way before all the mobile stuff and all the other omnipotent things that they're now doing. And so in about 2003, we said, what's this company and what are they doing and how are they achieving price points that are just lower than our cost? Turns out they were being subsidized by the Chinese government, right? It's like, we've seen this movie several times since 2003, actually. And so one of the processes that we had, just to give you an illustration to it, we said, you know what? We will not compete with them directly in the China market because they obviously want us in there because we've got leading technology and the rest of it. We're actually not going to manufacture in China either. So we're going to be, you know, the antithesis, if you like, of Huawei in every single way. We're going to be the alternative that's not China manufacturer and we don't operate there. That was a very controversial thing. Imagine, you know, a young company just gone public and going, hang on a minute.
why are you not going into the largest market in the world, the fastest growing telecom market in the world? So, but we had the strength of our convictions and, you know, it's taken a while, but I think largely, you know, that was a good decision for us because we didn't get distracted by that Chinese market. They'll give you 10% of that market, but they'll make sure you won't get anything else. And you'll partner with a local partner. And, you know, and I was fortunate enough to, I spent a lot of time in Asia. I lived in Asia for a number of years before I came to Siena. And I saw that movie, to your point, play out in so many different ways. And I was super sensitive to that.
as was the team. And so that is an instance of us doing something because of the geopolitical dynamics at the time and us making our decision. And, you know, you don't know how that's going to play out because, you know, things can change and the rest of it. You've just got to, I think, be smart around, you know, what you think is the best thing for the shareholders and your company and stick to it. Do you mostly follow the lead of the clients? Do you have your own points of view on geopolitics? I'm thinking of things like when you land the cable in Europe and your device is there decoding all the traffic.
There are a number of European spy agencies that might want to sit right next to that. The NSA in our country would love to sit right next to that, right? Like when you landed in other countries that have different kinds of privacy and security concerns, they might want to be a part of that. Is that something where you say, OK, look, Meta owns this cable. You talk to Meta. We're going to do what the client says. Or is that we are simply not going to build these capabilities on the standard devices? We're actually pretty fortunate that we don't have to make some of those tough decisions because it's not our cable. So to your point. But the data going over the cable, that's you, right? I mean, you're encoding and decoding it, right? Yeah, that's what we're doing. But even that technology is owned by the customer.
So, you know, we've sold that to the customer and what they do with it is, you know, entirely up to them. We don't have control over that. It's their network, you know, is another way of saying it. It's their property. So, you know, you think about these submarine cables. So someone owns the cable, we put the technology on the end of it. It's their technology. It's their own man and they run it as well. We don't run it. So they run those networks. So, you know, we're fortunate in that we've always been able to, you know, sort of stay one step behind that, you know, some of those dilemma questions to your point. So it's not something we have to apply on. When you think about the actual cables, you know, they're in international waters. What's the longest one that you operate?
I think it's about 10,000 kilometers. And some of these, you know, cables around the Pacific where you really get the, you know, the big distances. So they are very, very long cables. Now, what a lot of them do is stop off in different islands and different places and spur off, you know, some of the new cables going in, you know, spurring off in different places. So they're able to do that. We've also developed a technology that overlays that, which provides for resilience. So if you get a cut on particular cable, then we can reroute it.
depending on the, on the architecture. It's called GeoMesh and it's, you know, software and technology that's embedded into our core offerings that enable us to provide resilience across those, you know, some of those submarine cable links as well, because you get, you know, just in the normal run of things, I think it's something like a hundred plus, you know, faults a year, you know, mainly trawlers, you know, dragging their anchors on the fiber cable because they're buried at the bottom of the sea until they're not, right? So, I mean, they've got to come up somewhere. So, you know, typically it's in the shallower waters where, you know, you'll get some fishing. best will come across it. Do you ever get like angry sharks? Do you ever get a text message that's like shark attack brought down the network? Actually, you know, I know that's a sort of common sort of question I get asked around it. I, you know, and there is a section around fish attacks and the rest of it. I think it's just a bit of a, you know, I'm sure there are some examples of it that someone can point to over the last three decades. But I mean, I've never heard of it personally. You know, a shark attack actually being, I think they've got other things to worry about than these little tiny, because it's about the size of a big hose pipe. So I don't think it'd be particularly interesting to them.
We have this phrase we've been using at The Verge. My friend Casey Newton came up with it ages ago. He calls it the splinternet, right? Where what we perceive is one cohesive internet, but really we're fracturing, right? We're fracturing into continent-specific, country-specific internets. As I talked to you about the cloud providers, it's very obvious to me that we now have a number of private internets operating at high speed around the world that are just owned and controlled by single companies. That dynamic, I mean, you have a long view of the internet, right?
You're one of the few gas syndicators ever just straight up talked about Alcatel, right? You have a long view of the internet and how we've grown it and what it's for. The telecoms, by and large, were national champions, right? I mean, that's how they have thought about themselves. Even in the United States, that's how they thought about themselves. That's where they came from. There's a new kind of nationalism in America around our tech giants. I think in the Trump administration, Mark Zuckerberg says, I want the Trump administration to go fight the European regulators on my behalf. That's new. It hasn't come up before. We'll see if this jacket fits. You know, he's trying it on. But the way we build networks is expressions of national capability. The internet hasn't really...
We haven't experienced that too much as the internet. It's been one global internet that all connects, and we do whatever we want at our borders. But we haven't actually split the networks apart. But now you've got big cloud provider private networks. You do have rising nationalism around the world. You just have a pulling apart, maybe, of the internet. Is that affecting how you are building networks or how your clients are asking you to build networks? I totally understand the notion. And I think what you've got is a disproportionate amount of whether you want to sort of...
English understatement, so understand for its context, you know, a disproportionate amount of the innovation and development of all of this has been done in the US. I mean, you know, most of these technology companies, for sure. And now you've got a point where, you know, now a lot of the network is, you know, to your point, the big cloud players, you know, are investing in that network because that's their business model to it. And the network is becoming more and more important. Now, you know, to your point, when we talk about the network, it's not really, you know, we talk about it in this homogeneous sort of form. But if you think about this and you think about it in the context of sort of some large markets that the US...
cloud players are trying to get into, you know, take places like India. Now, you know, when they enter the Indian market, they are dependent upon connectivity from the local carriers. So, yeah, they can tip up, you know, with the submarine cables and the landing stations and the rest of it. But then it's, you know, how do I get connected to all the people I need to get connected to in India, enterprise and consumer? They are then dependent on the local carriers for that, be it Party or Geo or, you know, Vodafone Idea or, you know, or some of the wholesale carriers that are also there as well in Fiverr. So, you know.
There's always going to be an interrelationship because as omnipotent as all of these cloud players are, they're not going to be able to connect to everybody's home across the planet. And so you've always got this interplay between service providers and the cloud players. And what often happens there is that they will end up in some of these countries, the service provider will provide a specific network for the cloud player. And they call it Managed Optical Fiber Network. So MOFIN is the acronym for it. And we help facilitate that. So it's our technology. So it matches all of their global network. But it's owned and operated by, you know, the local service provider to support, you know, Meta or Google or Microsoft, et cetera. And so increasingly, you know, I'd sort of argue you're seeing that interdependency work. So it's sort of, you know, I don't want to say counter argument to this. We're all splitting up because at the end of the day.
To get to the consumers around the world, you've got to have, and that's not going to change. These service providers are not going away in that regard. They are the only ones that can provide that connectivity to it, ultimately, be enterprise or into the consumer. I'm fascinated by this because it does seem like the overall geopolitical dynamics of the world are changing and the internet will change with it. And I just keep coming back to the question I started with, which is the experience we have on the digital internet obviously impacts the physical internet that you are responsible for building. And I'm always trying to find the touch points between the two. The way we architect networks in India has a...
has a direct relationship to the Indian internet that those users experience. And it seems like those things are, if not diverging completely between different countries, they are certainly beginning down different paths. And that to me seems utterly fascinating. And I'm very curious as you think about, and I want to end with AI here, as you think about entering their data centers and saying, okay, we can envision some new high bandwidth, high capacity workloads in these data centers, which for the past 15 years, we have not really come up with massive new ones outside of streaming video. And streaming video is a lot, but that's basically what we came up with. Now there's some new ones in AI that might hit all kinds of new industries.
Do you think that that is just an exponential rise in how much capacity we need, how much power we'll need to use, how much networking capacity that we'll sustain? Or is, to make the comparison earlier to dark fiber, are we building out a lot of capacity that we'll eventually use over time? You know, that's a great question. And having lived through, you know, the previous period of the telecom nuclear winter where we built out all this capacity and sort of, as it turned out, no one came, it did facilitate. you know, all these business models, you know, that wouldn't have accelerated, you know, without that glut of capacity, you know, as it were. I get asked the question around, you know, all of these data centers, are we in another bubble around all of that and the rest of it? I mean, you know, listen, I think specifically around the data center piece, I think there's an insatiable demand for compute, to build out compute power.
Now, you know, these things always take longer than we all think, you know, to monetize and the rest of it. So we're probably going to go through some iterations onto that. But to answer your real question, I'm actually of the opposite view this time around. I think we're underestimating the amount of traffic and bandwidth that will be required to go do this because, you know, we're already seeing a clip up in cloud traffic and we're pretty well placed to see that. Yeah. Now, how much of that could I attribute to AI and the rest of it? Yeah, for sure. Some of it is, but I've got no way of really discerning, you know, which bit is which and it's not our network.
But there's a definite uptick in cloud traffic, you know, just to connect to all of these data centers. We are absolutely seeing that. And I think that's going to continue because you've got a lot more data centers coming online in the next, you know, 18 months to two years around the world. But if they're going to, you know, monetize any of that, they've got to all be connected for, you know, learning and training and the rest of it. And that's before, you know, I'd argue you've even really seeing, you know, the applications in there for like medical use or, you know, the verticalization. I mean, we're using, you know, your chat GPTs and the rest of it. That's generating traffic, sure.
You start to get to any of that medical usage, for example, and the amount of graphics that are required in there. Graphics are about 10 to 20 times more bandwidth consuming than normal data. And so if you start to get to the monetization of that through these kind of vertical applications and the rest of it, I think we're underestimating the amount of traffic that's going to be there. Do you think when you plan out growth for the company, and obviously you're a public company, so you have to do it out in front of everyone and talk about risk, but when you plan out growth in your most optimistic view... Is it sustainable, the rate of demand that you see now? You're saying we're underestimating it. I look at it maybe a little bit more cynically, which is, wow, we are building a lot of capacity against business models that don't exist, right? OpenAI has yet to turn $1 in profit, and they want all of the power the world can generate. They want every GPU that NVIDIA can build. That's a lot, right? There's an inherent promise there that this will all pay off, and maybe you would call that a bubble or maybe you won't. I'm just looking at it more mathematically. A lot of companies are going to sell a lot of things to these data centers. We're going to build a lot of capacity, and maybe at some point we will have built enough or not enough or something will happen, but that...
that will come to an end. And then a company like yours is saying, well, we've had this rate of growth and now maybe it's plateaued or maybe it's going down. How are you thinking about that? I think about it like this. Don't confuse compute capacity with the network. You know, the network is always the afterthought to all of this. It's, oh my gosh, yeah, I do actually need to connect these data centers. And yes, I do need, they're thinking about, so what's the hierarchy of their thought process? It's, you know, I need to compute, I need the power, I need the space. You know, those are the things that are driving their decision. And then by the way, oh my gosh.
I need to connect these things right now. I'm being flippant, but it's down there. I'd like to tell you it was right up there, but it isn't. And that actually, in the answer to this question, is I think a good thing in that we kind of only get there when they need it. They're not building out these enormous capacities because we see it. We're putting capacity out there and they're putting traffic down it. I take real comfort from that, having lived through 2002 and 2003, where our revenues went down from something like 1.6 to about 300 million in one year.
I've still got the scars for that, so I'm particularly sensitive to this. This is not the same dynamic to it. They are actually putting capacity out, and as fast as we put it out there, traffic is coming through it. I think to your point, and what other folks are saying is, is it going to get overheated in terms of the GPU stuff and the data centers and the rest of it? My own personal opinion? Absolutely. Will there be a bit of a, you know, tail off in all of that? Absolutely. You know, will it take longer for applications in the AI world to truly, you know, generate the economics? Absolutely. But we're not banking on that. We're just seeing this nice, steady growth in bandwidth, which I think will, you know, pervade throughout. Another way of answering your question.
Bandwidth growth in the last two decades grows about 20, 30% a year and has done, and it's not cyclical. And when you think about it, it shouldn't be cyclical, should it? I mean, it's just, you know, we're putting more and more applications. We're using our phones for more stuff. You know, more people are getting phones, you know, and all these devices are now connected. So, you know, that has been very steady and consistent, you know, throughout. Even when you get an economic downturn, it continues at about a pace. What we're talking about here is the advent of AI really on top of that.
And so, you know, exactly what is it going to be? No one really knows. I mean, there's all kinds of models, but you know, no one really knows, but it's reasonable to assume that it's going to come on top of that and could push us to 30, 40%, you know, bandwidth growth per year. And I think that's, that's going to be pretty sustainable when you think about all the things of, you know, the promise of AI and, and the real trick with it is you start putting any graphics down it. It's, it's, you know, every time you hear Seymour Pichai say multimodal AI, I can see the dollar signs. Yeah. I love it. So, you know, and we're planning our business basically on what we see.
And we've taken our growth rates up. Typically, this business has grown. We've grown about 7% or 8%. We're now saying it's going to grow 8% to 11% over the next three years. And that's really without any massive entry into the data center or anything else. It's just what we see from a cloud growth point of view.
You've talked a lot about entering the data center using the same core technology that you use for undersea cables and the telecom providers inside the data center. What are the barriers to doing that? And what were the things you assessed when you thought, okay, this is the market we have to address? You know, the barriers to entry there is you've got a technology called Direct Connect, which has been well ensconced there for, you know, really since the start of the communication in data centers. And, you know, you've got an ecosystem there that, you know, is going to be designed to elongate that for as long as possible. And the customers want to keep it for as long as possible.
The analytics that we've done on it and working with them, you know, they think that there's going to be an intersect point here where the physics of that basically, you know, get to the point where it's not sustainable. And we think, you know, we've got to the point with power and space where there's a good intersect to that. So it's the analytics around that and working with two or three of these players who are, you know, already our customers, but, you know, outside the data center. Is that them coming to you or are you going to them? You know, a little bit of both. We have strong relationships with them. So, you know, that collaboration has sort of been there. You know, we're realistic about it.
The existing way of working and that direct connect, that's not going away. That's probably still the majority of applications for it. So you're looking at, you know, one of the subsets of corner case applications for this kind of high speed connectivity. But, you know, even a small part of that is, you know, massive for us. And, you know, massive from a scale point of view, given the amount of spend that's gone on in that space. So, you know, it's always about taking risk when that market isn't there right now. But if you wait until that market appears, it's too late, right? You know, if you're waiting for, oh, what's the market share of this and what's the growth rate and the rest of it.
At the end of the day, you've just got to go with what your intuition is and what you're hearing and seeing from the customers and the rest of it. So we've got our first iteration of technology for this coming out at the end of the year. And that's a bet that we placed two or three years ago. And as you know, in some of these chip designs and stuff, the timing, it takes a while. And you've got to kind of guess where the market's going to go, not where it is right now. So there's always an element of risk to it. And you listen, you know.
Having gone through some of these before, you know, you're never going to get it completely right. You're just going to be in the right vector and then, you know, pay attention and tweak along the way, you know, around it. And so we're listening intently. Gary, this is an incredible conversation. You're going to have to come back sometime. I could talk to you about this. Yeah, no, I enjoyed it. I enjoyed it nearly. No, good questions. Good stuff. No, I enjoyed it.
We'll see how the geopolitics of laying cable... We should have you back a couple of years from now and see how stressed you are about these undersea cables. I think that would be very interesting. Well, we're certainly in for some entertainment, aren't we? I know what we're writing about for the next four years. Gary, this is amazing. Thank you so much. All right. Enjoyed it. Nice to meet you.
I'd like to thank Gary Smith for joining me on Decoder today, and thank you for listening. I hope you enjoyed it. If you'd like to let us know what you thought about this episode or really anything else, drop us a line. You can email us at decoderattheverge.com. We really do read all the emails. You can also hit me up directly on Threads or Blue Sky, and for the next 70-something days, we have a TikTok. Check it out. It's at DecoderPod. It's a lot of fun. If you like Decoder, please share it with your friends and subscribe wherever you get podcasts. Decoder is a production of The Verge and part of the Vox Media Podcast Network. Our producers are Kate Cox and Nick Statt. Our editor is Callie Wright. The Decoder music is by Breakmaster Cylinder.
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