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HAS A RECOVERY IN THE TELECOM MARKET BEGUN?

LightCounting Releases July 2013 Market Forecast Report and Database

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Speculation about an imminent recovery in the telecom market has fueled the imagination of the industry since the telecom bubble burst of 2001. Every year the recovery seems to be just around the corner, but for some reason the market can never quite turn the corner. Is it possible that the recovery has already started, but we have not noticed?

This raises the question just what are the right metrics for measuring the market recovery? CapEx of the leading service providers is increasing, but most of the additional investments are going into wireless networks. Funds allocated for upgrades of wireline and optical networks are steady, but there is no growth. Sales of optical networking equipment are flat on average.  In addition, few component vendors are reporting increasing sales into the telecom market with 100G and wireless backhaul being the only segments of growth in 2013 to date.

It takes a deep dive into the market statistics to find signs of a recovery. The chart below shows our data on growth rate of DWDM network bandwidth (red line), calculated from historical and projected DWDM port shipments and compares it with estimates for the internet traffic growth (blue line). The two lines diverge widely during the telecom bubble and post-bubble years. Starting in 2007, we do see more correlation between the two growth rates. Network upgrades, however, are affected by the economic cycles, peaking in 2008 and dropping in 2009, while the internet traffic growth declines very gradually (Please note that the internet traffic continues to grow, but it is the growth rate that is declining).
graph

Source: LightCounting Market Research


By this metric, the latest recovery in the telecom market started in 2010 and accelerated in 2012. Sales of optical components and modules for telecom applications did increase sharply in 2010-2011 (up by 48% and 20%, respectively), but this market segment was anemic in 2012, posting just 2% growth. Sales of optical networking equipment picked up in 2011, but disappointed in 2012.

Why is there no correlation between growth in the network bandwidth and sales of optical components and networking equipment in 2012?  What should we expect in 2013?


What our research shows is that growth in DWDM network bandwidth is mostly driven by increasing deployments of 40G and 100G ports. If you look at sales of 40/100G optical components and modules, these were up by 50% in 2012, exceeding $750 million, but the total market for telecom components and modules was flat due to declines in sales of legacy products. This trend is likely to continue in 2013. We are projecting for at least 30% growth in sales of 40/100G telecom components in modules in 2013, but it could be lower if AT&T and China Telecom delay 100G projects, planned for the second half of the year.

Sales of datacom components and module, including 40GigE products, are ramping up nicely in 2013 and this growth should remain solid in 2013-2017. Demand for optical transceivers supporting wireless infrastructure upgrades to LTE is very strong as well. Sales of 10G PON should give a boost to the FTTx market segment in late 2013.

With all the excitement about 40GigE in data centers, upgrades of core networks to 100G and deployments of LTE and FTTx for broadband access, let us not forget about the aggregation and metro parts of the network. These may be less glamorous projects, but service providers may have to chase bottlenecks in their networks for years to come, keeping suppliers busy. The broader market may be stagnating today because of price wars and declining sales of legacy products, but it is not going away. Remember, it is going to be a 10G world for a very long time.

The Forecast report presents analysis of business and CapEx of the top 15 service providers and offers a detailed historical sales data (2009-2012) and 5-year (2013-2017) forecast for sales of optical component and modules used in Ethernet, Fibre Channel, SONET/SDH, CWDM, DWDM, wireless infrastructure, FTTx and high-performance computing applications. The sales data for 2009-2012 accounts for more than 30 component and module vendors, including at least 20 suppliers that shared confidential sales with LightCounting. More information on the Market Forecast Report and Database is available at: http://www.lightcounting.com/Forecast.cfm

Upcoming Events

LightCounting will host a dinner seminar for clients and guests at CIOE tradeshow in Shenzhen, China at 5 pm on September 6th, 2013. The event will include presentation by Dr. Vladimir Kozlov, founder and CEO of LightCounting covering highlights from the latest market research reports. Please email Melody@LightCounting.com for the event details.

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About LightCounting Market Research

LightCounting is a leading optical communications market research company, offering semiannual market update, forecast, and state of the industry reports based on analysis of publicly available information and confidential data provided by more 20 leading module and component vendors. LightCounting is the optical communications market’s source for accurate, detailed, and relevant information necessary for doing business in today’s highly competitive market environment. Privately held, LightCounting is headquartered in Eugene, Oregon. For more information, go to http://www.LightCounting.com, or follow us on Twitter at http://www.twitter.com/lightcounting.