SYOPTEK'BLOG

Revenues of the leading optical component vendors broke the $1.4 billion mark for the first time in the second quarter of 2016, and grew 27% compared to Q2 2015. Nine of the fourteen vendors tracked by LightCounting reported new record high revenues. Component demand was driven by a broad cross-section of market segments, including metro 100G in China, ROADM-based flexgrid builds in North America, and unrelenting hyper scale datacenter capacity expansion.

100G products of all types experienced strong demand growth in the second quarter, with CFP-ACO, CFP-DCO, QSFP28 (CWDM and LR4), CFP2, and CFP4 each cited by one or another vendor as driving their revenue to new heights. Surprisingly, demand for technically mature 10G transceivers (in XFP and SFP+ packages) also showed very strong growth. 40 and 80 km reach 10G device shipments saw an especially large uptick, and one driver of those particular products demand is believed to be the expansion of aggregation and metro edge networks in China.

Despite the stellar growth at the component level, telecom networking equipment sales increased 14%, while datacenter storage and switching gear sales continued to trend downward, falling 5% compared to 2Q 2015. The disparity in growth rates between system and component vendors reflects the growing influence of white box system makers (not included in our reported datacom equipment figures), and the increasingly common sale of components directly to end-customers.

A key question for CEOs and their business planners is how long this surge in demand will continue. A number of vendors reported that popular product lines were capacity constrained in Q2, despite recent capital investments. In the past the component industry has fallen victim to ‘pipeline effects’, with demand multiplying as it moves down the supply chain, resulting in inventory corrections following large increases in demand. Today’s tighter coupling between component suppliers and end-customers should lower the likelihood of this happening again or reduce its impact, but it remains a risk.

Detailed shipments of 100GbE optics in the first half of 2016 are presented in LightCounting’s Quarterly sales database, released along with the Market Update Report. The database includes historical data on quarterly shipments and pricing of more than 100 products in 2014-2015. More than 20 leading optical transceiver suppliers contributed data to this report.

The report also presents an analysis of revenue and spending trends of top-tier telecom and Internet service providers, and the financial results of telecom and datacom equipment vendors, including the market shares of the leading suppliers of 100G DWDM transport equipment.

“The global telecom sector is growing immensely in emerging countries,” notes Asif Gani, a lead embedded systems research expert from Technavio. “Data traffic and the use of mobile broadband will increase in African countries such as South Africa, Botswana, Ghana, and Nigeria due to factors such as a beneficial environment for investment and customer services, during the forecast period. Latin American mobile network operators are also increasing their investments in network infrastructure due to burgeoning customer demand for mobile data.”

Moreover, the fiber-optic connector market in APAC is estimated by Technavio to grow at a CAGR of more than 12% during the forecast period. An increase in internet penetration in emerging APAC countries such as China and Japan, along with the need for high-speed internet connections, is driving the demand for cables and connectors in the region.

Similarly, the fiber-optic connector market in North America is estimated to grow at a CAGR of close to 12% during the forecast period. North America is expected to increase its adoption of fiber-optic connectors in data centers, enterprises, and security sectors. According to the analyst, the outlook for network equipment spending in North America remains robust and “is mostly driven by the move to cloud architectures and the never-ending quest to make IT infrastructure more secure.”

Finally, the fiber-optic connector market in Europe is estimated to grow at a CAGR of close to 13% during the forecast period. The report sees Europe making progress in FTTH penetration. “By September 2015, there were more than 35.9 million FTTH/B subscribers in Europe,” notes Technavio. “In 2015, there was continued structural growth in fiber rollout throughout Europe, which is expected to grow during the forecast period with increasing penetration rate.”

From QY Market Research, the Global Fiber Optic Attenuators Consumption 2016 Market Research Report is a professional and in-depth study on the current state of the fiber-optic attenuators market.

The report projects the growth rate of the fiber optic attenuators market during the forecast period, estimates the size and valuation of the industry in the coming years, and states the key drivers and restraints affecting the growth of the market, as well as current trends and opportunities.

The study’s analysis of key manufacturers analysis includes the following companies: DiCon Fiberoptics, Corning, AFL, OZ Optics, Alliance Fiber Optic Products (AFOP), Newport Corporation, EXFO, Amphenol Fiber Optic Products, Fibertronics, TE Connectivity, L-com, Thorlabs and EigenLight Corporation.

The report segments the worldwide fiber optic attenuators market on the basis of product type, market application, and end user segments. Relevant data gathered from regulatory authorities has been compiled to determine the growth of the segments.

The average profitability of optical component and module suppliers was very close to zero over the last 5 years, despite strong demand for optics. Compared to every other level of the industry supply chain, profitability of the optical component manufacturers was the lowest by far.

Financial reports of several suppliers of optics started to show signs of improvement over the last 2-3 quarters. The average profitability of optical component and module vendors was 2% in 2015, compared to a loss of 1% in 2014. There is a good chance for reaching 5-7% profitability in 2016-2017 and setting a new record. The highest profitability achieved so far was 5.5% in 2010, preceded by more than ten years of heavy losses.

Net profit margins in the optical components value chain

Source: Public financial reports

Several component vendors restructured their businesses in 2013-2014 and these efforts are starting to pay off now. Accelink, Applied Optoelectronics, Coadna, Neophotonics and Oclaro reported significant improvements in financial performance. Acacia joined the list of publicly traded vendors recently and holds the record with a 17% net margin for 2015. Finisar’s profits started to improve in the second half of 2015 and we expect this trend to continue.
Read more

Suppliers of 100G optical components for telecom applications first reported a sharp increase in demand in Q4 2015 and set new sales records for these products in Q1 2016. Data on shipments of 100G DWDM ports by Huawei, shown in the figure below, illustrates the increased demand.

Huawei shipped more 100G DWDM ports than five of its competitors combined in Q1 2016. Three of these five competitors also reported increased shipments of 100G optics with the remaining two posting seasonal declines, after a strong Q4 2015. Nokia (Alcatel-Lucent) leads the market in shipments of 200/400G DWDM ports.

Significant fraction of the 100G DWDM ports shipped by Huawei in Q1 2016 went to China Mobile, but demand from other customers is picking up as well. Bidding results for Q2 2016 indicate a sharp increase in orders for 100G DWDM ports from China Unicom.

It is interesting that demand for 100G optics from China is setting new records, while the capex of the Chinese service providers is expected to decline by 20% in 2016. Reduced spending suggests that the initial phase of major infrastructure upgrades is reaching completion, but deployments of DWDM optical ports tend to continue for many years after that. Large service providers tend to add capacity incrementally by lighting up more DWDM ports in response to increasing network traffic. Read more