LightTrends

 

Competition in the global communications market intensified in 2012, as vendors guard their market shares, planning for growth in 2013-2017

Preview of the Market Forecast Database for 2013-2017 is available now.

View this newsletter in Chinese

Financial reports of service providers, networking equipment and component suppliers suggest that 2012 was a slow year for the industry, but this is hardly the case.  For majority of the vendors, last few months were very intense and many are really looking forward for the Christmas break this year.

The good news is that demand for communication services is as strong as ever. Consumers and businesses worldwide continue to take advantage of the networking infrastructure despite the macroeconomic uncertainty. There is very little doubt that networking infrastructure and internet-based businesses will be the key drivers of future economic growth.

These high expectations for the future lead to brutal competition among vendors in the market today, starting with service providers and reaching across all levels of the industry supply chain. For example, China Telecom challenged the dominance of China Mobile in the wireless market, offering free cell phones and Internet access to new customers. China Mobile responded by offering a complimentary FTTH to their subscribers. Battles between service providers in Europe and the U.S. captured many headlines this year, offering comfort to their regulators charged with promoting competition.

Revenues remained flat or increased slightly for majority of service providers and network operators in 2012. Suppliers of networking equipment reported declining revenues in 2012 and attributed this to a sharp drop in prices rather than slower than expected demand. Many equipment suppliers generate increasingly higher revenues from selling services to network operators, which rely on their suppliers to maintain and upgrade increasingly complex networking systems. From this perspective:  equipment sales today is an investment into a steady stream of service revenues for many years to come. Maintaining or growing market share at the expense of lower prices is certainly an understandable strategy.

Considering this competitive pressure at the top of the supply chain, manufacturers of optical component and modules had a reasonably good year in 2012. Data collected by LightCounting indicates that sales of optical transceivers used in telecom and datacom networks increased by 6% in 2012 with 20% more products sold in terms of units, compared to 2011. Total size of this market exceeded $3 billion in 2012 and it is projected to reach $5 billion by 2017. Preview of database with historical sales data and forecast for optical component and module market is being released by LightCounting today and final version will be published along with the Market Forecast report later this month.

Sales of DWDM transmission modules and related components ramped by 10% in 2012, led by 100 Gbps products. We estimate that deployment of all these DWDM products will increase total bandwidth of the core network by 35% this year – in line with estimates for annual growth of internet traffic. The DWDM market segment is projected to grow at 14% CAGR over the next 5 years, exceeding $1 billion by 2017. This forecast assumes that growth in bandwidth of DWDM networks will remain correlated with internet traffic growth, which is expected to moderate from 35% this year to 25% by 2017.

Sales of Ethernet optical transceivers increased by 20% in 2012, exceeding $1 billion – slightly ahead of our forecast. Growth in this market segment was led by sales of 40 GigE and 100 GigE modules, which more than doubled in 2012. Sales of 10 GigE modules accounted for more than half of this market segment, as demand for these products in datacenters remained strong. With Intel Romley based servers shipping since early 2012, the transition from 1 GigE to 10 GigE connections between servers and top-of –the –rack (TOR ) switches is accelerating.  Direct Attached Copper continues to fill much of the gap for very short reach interconnects left by 10GBASE-T with its excessive power requirement, but optical SFP+ transceivers and active optical cables offer a longer reach alternative.

Traffic aggregation at the TOR switches in datacenters is driving sales of 40 GigE optical transceivers.  These modules are also used for aggregation of four 10 GigE ports, enabling increased density at a comparable price.  Owing to their much higher pricing, 100 GigE transceiver sales are already tracking above sales of 40 GigE modules. However, the majority of 100 GigE transceivers sold in 2012 were deployed in telecom core networks rather than datacenters. We project that sales of 100 GigE optical transceivers will exceed sales of 10 GigE by 2017, but this will require development of much more compact, power efficient and less expensive 100 GigE products designed for high volume deployments in datacenters.

The development roadmap for 100 GigE optical transceivers looks like an obstacle course for suppliers and their customers. It includes several generations of modules, such as CFP, CFP2, CFP4 and QSFP for SR (100m), LR (10km) and possibly IR (2 km) interconnects. Despite (or because of) the variety of standard modules proposed by suppliers, customers like Cisco and Huawei are developing their own versions of 100 GigE interfaces. Cisco is strongly committed to CPAK transceivers based on silicon photonics technology. Huawei has not made any public announcements of proprietary 100 GigE interfaces, but it is widely expected to develop it in-house.

The Forecast report presents analysis of business and CapEx of the top 15 service providers and discusses trends in optical networking equipment markets. The report offers a detailed historical sales data (2009-2012) and 5-year 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 vendors that shared confidential sales data with LightCounting. Template of the forecast database, detailing product categories covered in the report is available at: www.LightCounting.com/Forecast.cfm.

About LightCounting:
LightCounting, LLC, 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.

.

.