LightTrends

 

2017 was a record year; why doesn’t it feel like it?

LightCounting publishes Quarterly Market Update report and spreadsheet

 

LightCounting’s just-published March 2018 Quarterly Market Update provides detailed public company financial results as well as proprietary vendor shipment data through the end of 2017. This allows us to finally evaluate the fourth quarter and the whole year of 2017 “with all the data in”.

It turns out that 2017 was a record year for optical components industry revenues. While this may be surprising, the numbers back it up (well, sort of).  Aggregate 2017 revenues of public optical components vendors (from the OC Vendor tab in the QMU spreadsheet) totaled $8.266 billion for 2017, 8% higher than the $7.639 billion reported for 2016. The transceiver-only figure provided by the survey data is $5.482 billion for 2017, just a half-percentage point higher than the 2016 figure of $5.451 billion.  So for transceivers alone, 2017 was a still a record, but by an insignificant amount.

The difference in this comparison is telling. The publicly-reported, total-company figures includes revenue from new and different product opportunities such as 3D-sensor arrays, which gave Lumentum an incremental $200 million in sales in the fourth quarter of 2017, and are expected to be even larger in the latter half of 2018. II-VI also reported sales growth above the group average, and has a broader product portfolio than others in the group.
 
Many components vendors experienced decreased demand for various products in 2017, for a variety of reasons. Spending by Chinese OEMs slowed, partly due to inventory and partly due to a pause in network upgrade projects. Some products like 40G and CFPx transceivers are near the end of their product life, and are being replaced with smaller/faster substitutes. Access products for PON and fronthaul networks are at a low point in the multi-year network upgrade cycle. 

The early 2018 market outlook provided by company CEOs in their earnings calls reflected this challenging market environment, and is summed up in this chart showing revenue guidance for Q1 2018, presented as projected revenue growth vs. Q1 2017. 



Despite this pessimistic short-term outlook, there are reasons to be optimistic about 2018 as a whole. The ICPs double-digit revenue and spending growth shows no signs of slowing down. And China is embarking on a plan to beef up its datacenters in support of strategic goals, which will just add fuel to the fire. The inventory issues at OEMs are reported to be mostly resolved or should be by the end of Q1. China Unicom has issued a tender for new network equipment and China Mobile is expected to do the same. CSP capex, which was 2% lower in 2017 than in 2016, is expected to increase slightly, returning to 2016 levels.  And although the first 5G-capable phones won’t hit the market for another year or two, CSPs are already embarking on trials, and starting to upgrade their core/metro/access networks to support the higher levels of traffic that widespread 5G will eventual bring. Meanwhile traffic growth in global networks and in datacenters continues unabated, maintaining strong demand for higher-speed Ethernet and DWDM optics.

More importantly, Lumentum’s success in 3D-sensors for smartphones provides a shining example of how rewarding it can be for optical components makers to branch out into adjacent markets, leveraging their expertise and their technology capabilities. II-VI and Finisar are already following Lumentum’s lead into the 3D-sensor market, and Finisar is investing in a new 6-inch VCSEL wafer facility in Sherman, Texas to expand capacity for these products. LIDAR and other optical sensors will play an increasingly important role in autonomous vehicles, and optical components no doubt find application in other varied facets of an ‘internet everywhere’ 5G/IoT world. 
  
The newly published Quarterly Market Update provides data and commentary on Q4 2017 financial results of CSPs, ICPs, hardware, and components makers, as well as actual product level shipment data for 3Q and 4Q 2017, obtained via LightCounting’s proprietary vendor shipment survey. LightCounting subscribers can access the PDF and spreadsheet at: https://www.lightcounting.com/login.cfm

In the next two months, LightCounting will publish its High-Speed Ethernet Optics report (with Ethernet transceiver forecast), the Cloud Report, and the LightCounting Market Forecast (covering all product segments). Reports on the State of the Industry and on Integrated Optics are slated for May. For more information see our 2018 LightCounting Research Roadmap.



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ABOUT LIGHTCOUNTING MARKET RESEARCH

LightCounting is a leading optical communications market research company, offering semiannual market updates, forecasts, and state-of-the-industry reports based on its analysis of primary research with dozens of leading module, component, and system vendors as well as service providers and other users. LightCounting is the optical communications market’s first choice source for the accurate, detailed, and relevant information necessary for doing business in today’s highly competitive environment. For more information, visit: www.LightCounting.com or follow us on Twitter at @LightCounting.