Annualized 100G hardware revenues top $1B says Ovum

Sales of 100-Gbps optical network (ON) technology surpassed $1 billion on an annualized basis for the first time, according to market research and consulting firm Ovum. However, its analysis of 1Q13 fiber-optic network equipment sales indicates that overall growth in the market remains challenging.

While Infonetics Research struck a positive note in its assessment of the market after the end of the first quarter of 2013 showed both a sequential and year-on-year decline (see “Optical network hardware market 'looking good' in 2013 says Infonetics Research”), Ovum is less enthusiastic.

“While it is not uncommon for the market to decline going into the first calendar quarter, the decline is worrisome as this is the fifth straight time the market has declined versus the prior year's quarter, and quarterly revenues are the lowest they’ve been in six years,” says Ron Kline, network infrastructure analyst at Ovum.

Nevertheless, Kline’s outlook is not completely gloomy. “On the bright side, 100G continued to show strong growth both sequentially and year over year. 100G port shipments in 1Q13 grew 41% and revenues grew 24% versus 4Q12, with annualized revenues surpassing $1 billion for the first time. Twenty vendors shipped 100G for revenue in 1Q13 and more are slated to enter the market throughout the year. Guidance from vendors is cautiously optimistic, with good short-term visibility into order growth; long-term visibility remains cloudy,” he says.

Ovum’s newly released market share analysis indicates sales of next-generation converged packet-optical transport systems, including OTN switching gear, grew as well versus the year-ago quarter. However, annualized sales of 40G gear declined for the first time, indicating perhaps that the 40G market is starting to slow as vendors price 100G aggressively. From a regional perspective, spending compared to the year-ago quarter dropped in Asia-Pacific and EMEA, remained flat in North America, and grew 15% in South and Central America.

The current doldrums result from an acceleration in the shift in spending to non-IP/Ethernet aggregation equipment, faltering economic growth in Europe, and lower pricing due to intense vendor competition, according to the report.

Looking at individual vendors, ZTE clawed its way over Alcatel-Lucent into the number two spot in terms of market share, behind Huawei. This marks the first time Chinese vendors hold the top two spots in optical networking, the report states. However, only Fujitsu posted sequential and year-over-year gains during the quarter.

Overall, the outlook should turn marginally brighter for optical network vendors, Kline believes.

“The 1Q13 global ON revenue results are consistent with our most recent annual forecast published in April 2013. Ovum is projecting the optical networks market will exceed US$17.1 billion by 2018, for a 2.7% CAGR from 2012,” Kline explains. “We project that all ON market regions will resume growth in 2013 as carriers who exercised fiscal caution and deferred spending in 2012 restart their plans. Growth of IP, video, mobile data, and data center expansions occurring in urban and more remote areas will be an ongoing catalyst for network footprint extension and capacity growth. Submarine network footprint and capacity will also expand in 2013.”

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