Research Note

Abstract

Halfway through the fourth quarter of 2020, we can start to look forward to the end of a tumultuous year, in which the optical components market was impacted by a coronavirus pandemic and a trade war between the US and China. The negative impacts were felt starting in Q1 and continued into Q2. On the positive side, the pandemic has accelerated moves to online business models, including in education and office work. In this note we review results for Q3, which on the whole, showed improvements in demand and supply, over Q2. By segment, the results stack up as follows: ICPs reported strong growth in revenues and spending. Combined revenues of Top 5 ICPs (Alphabet, Amazon, Apple, Facebook and Microsoft) increased by 25% y-o-y and 9% sequentially, while their spending increased by 33% y-o-y and 22% sequentially. CSPs reported declines in sales and capex as a whole, with mixed results by company. Combined revenues of companies in this group that reported Q3 results were down 1% and spending down 8% y-o-y. China Mobile, China Telecom, China Unicom, Comcast, and Orange reported single-digit growth in quarterly revenue y-o-y, and the rest were flat to negative. Telecom equipment makers sales improved vs. Q2. Notably, Nokia’s optical networking business was up 18% y-o-y and 28% sequentially, but total revenues were down 3% y-o-y. Ericsson Networks group revenues grew 14% sequentially, and 15% year-over-year, driven by China and North America. ZTE’s revenues grew 37% y-o-y and 5% sequentially. Datacom equipment vendors sales fell 10% versus Q2, due to large declines at IBM, Inspur, and Lenovo. Arista, Extreme, H3C, and Juniper reported sequential increases in sales. Cisco reported Q3 results as this report was going to print and it was also down 2% sequentially and 9% y-o-y. Cisco’s Infrastructure platform revenues were down 4% sequentially and 16% y-o-y. Orders from the enterprise customers were down 15%. Guidance for the current quarter is flat to down by 2%. Hardware sales will continue to decline a bit steeper, but the management sounded more optimistic than a quarter ago. Apart from Intel, the semiconductor companies reported higher revenues. Intel reported 7% sequential decline in Q3 sales and expects another 5% drop in Q4 due to lower sales to service providers. In contrast, AMD reported close to a 50% increase in Q3 sales and expects more growth in the current quarter, driven by sales of processors for AI applications. Sequential growth in revenues of optical component vendors has moderated after an exceptionally strong Q2, but the year-over-year comparisons are still impressive. NeoPhotonics expects a 35% drop in Q4 sales because of restrictions on sales to Huawei, but the restrictions’ impact on the larger companies, including II-VI and Lumentum, will be barely noticeable. LightCounting subscribers can access the full text of this research note by logging into their online accounts.