LightTrends Newsletter

Sales records fell like dominos in Q2 2021…

September 2021

LightCounting’s summary and analysis of Q2 2021 results was published today in September 2021 Quarterly Market Update.

The figure below illustrates Q2 2021 financial results across the industry supply chain in comparison with the same quarter of last year. The datacom side of the industry saw growth from top to bottom, while the telecom side lagged. In dollar amounts, CSP revenues, ICP spending, Ethernet transceivers, and Semiconductors all reached record highs in the quarter.

The top 15 CSP’s sales were propelled to record levels by strong showings by a number of different companies – eight of the fifteen had double-digit revenue growth. Softbank was a notable exception, with sales down 8% year-over-year. CSP capex on the other hand fell 8% sequentially and was only 1% higher than the year-ago quarter. Six companies reported decreased spending versus 2Q20, totaling $3.6 billion, and China Mobile, China Telecom, and China Unicom accounted for $2.2 billion of the drop. This is a reflection of the lower level of 5G deployment in China in Q2 2021 compared to one year ago. Unit shipments of fronthaul transceivers also declined in Q1 and Q2 compared to 2020, as China only deployed 111,000 5G base stations in H1 2021 versus 288,000 in H1 2020. We expect deployment to improve in H2 2021 (see September 2021 China Wireless Infrastructure Update 1H21).

Telecom equipment vendors as a group reported sales just 1% above Q2 2020 levels, but there was a distinct division between Adtran, ADVA, Ericsson, and Nokia, which all grew sales at double-digit rates, and Fiberhome, Fujitsu, and Huawei which all had lower sales in 2Q21 than in 2Q20. Pure-play optical transport vendors Ciena and Infinera were both basically flat.

Optical transceiver sales overall were basically flat in Q2 2021 compared to Q2 2020, though technically 2Q21 was a new record, 0.3% higher. Among transceiver segments, FTTX had the highest growth (up 46%) followed by Ethernet (up 14%) and DWDM (up 7%). Ethernet reached a new record high, going above $1 billion for the first time, while FTTx was below the record of $144 million, set way back in Q1 2017.

The Top 15 Internet Content Providers (ICPs) reported sales up 36% year-over-year, posting the second highest quarterly revenues on record, while infrastructure spending was up 45% year-over-year to a new high of $44 billion, blowing away the old mark of $37 billion set in Q3 2020. Spending growth by Chinese ICPs lagged Western companies however, growing only 12% while the Western companies increased by 50% year-over-year. The massive spending growth by ICPs was somewhat surprising, as historical trends suggest a period of slower growth is coming. Amazon and Apple are largely to blame, together spending $9 billion more in Q2 2021 than in 2020. In contrast, Facebook previously reduced spending guidance for 2021 to just 11% annual growth versus 2020, and for the first half, its spending was flat with H1 2020 levels.

During Q2 2021, datacom equipment vendors experienced modest revenue growth year-over-year (+5% from Q2 2020). The growth in Q2 2021 can be attributed to slow but steady market recovery as component supply issues improve and normal seasonality, as Q2 growth traditionally exceeds Q1. The top 7 datacom vendors (+5% from Q2 2020) experienced decent year over year growth, whereas the rest of the industry players saw even better results (+12%). Based on the guidance provided by six key vendors (Dell, Cisco, NetApp, Juniper, Arista and Extreme), the outlook for Q3 2021 revenue looks very optimistic: growing 14% in aggregate from Q2 2020, and 3% sequentially.

Semiconductor vendor revenues grew 32% in Q2 2021 versus Q2 2020. The growth can be attributed to a number of factors including sustained demand from data center customers, steady component supply improvements and normal seasonality. The top 7 semiconductor vendors (+33% from Q2 2020) drove the most year-over-year revenue growth, yet other key industry players (+28%) made meaningful contributions as well. Guidance provided by Qualcomm, Broadcom, NVIDIA, Intel, AMD, Analog Devices, Microchip, Marvell, Semtech, and MACOM projects Q3 2021 aggregate revenue to grow 17% from Q3 2020 and 3% sequentially.

Although the latest results are trending very positively, we cannot overlook the continued component supply shortages impacting both the datacom and semiconductor industries, as well as almost every other global market. The shortages are continuing to cause uncertainty via longer than normal lead times, pent-up customer demand from customers potentially stockpiling supply, and pricing variations; yet most vendors remain optimistic.

LightCounting’s Quarterly Market Update is published as PowerPoint slides with an accompanying Excel database, for easy client access to charts and data.

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