The global optical networking equipment market got off to a slow start in 2014, but growth is expected to pick up again as soon as the next quarter, according to the latest report from market research firm Ovum.
Optical networking equipment quarterly revenues of $3.1 billion were down 14% from 4Q13 and 2% from 1Q13. Spending increases in North America were not enough to offset double-digit quarterly declines in every other region, the analysts say. The figures were in line with those Infonetics released last two weeks ago (see “100G makes up 20% of the WDM market says Infonetics”).
Application segments will drive an upward trend, Ovum believes. Spending for converged packet optical transport systems (CPO), ROADM, 100G, and Optical Transport Network (OTN) switching increased by double digits again in 1Q14 compared to the year-ago quarter. Annualized CPO sales for 1Q14 were nearly $7.8 billion, more than half of all optical network spending, according to Ovum.
“The growth in network bandwidth is astounding and the transport market is evolving to keep pace,” said Ron Kline, principal analyst, intelligent networks at Ovum. “The CPO segment is growing nearly as fast, and network bandwidth and 100G is quickly becoming the wavelength of choice. While the overall market remains flat, the trend for CPO is anything but. 2014 is shaping up to be a very exciting year as metro-optimized 100G and adaptable-rate flex-spectrum 200G/400G line cards enter the market.”
Data center interconnection and access network deployments are also increasing demand for optical equipment, according to Ovum.
“The data center is the new central office, and interconnecting them is a major driver of optical networking gear. Backhaul requirements for growing LTE and GPON deployments in the access network are also increasing demand for optical,” said Kline.
Around the globe there was strong regional variation. 1Q14 spending increases in North America did not offset declines in EMEA, South and Central America (SCA), and Asia-Pacific. Optical networking revenues in North America rebounded off a traditionally weak 4Q13, but sales in EMEA fell to $682 million, their lowest point since 1Q04 (the depth of the post-bubble crash). Sales in Asia-Pacific also declined, to their lowest point since 3Q08. SCA spending declined from 4Q13 but grew on 1Q13.
As a result, vendors with stronger exposure to North America did best in 1Q14. Cisco Systems Inc. (NASDAQ: CSCO) and Infinera Corp. (NASDAQ: INFN) were the only vendors to report both quarter-over-quarter and year-over-year revenue gains, according to Ovum. Ciena Corp. (NASDAQ: CIEN), Alcatel-Lucent (Euronext Paris and NYSE: ALU), ZTE Corp. (H: 0763.HK / A: 000063.SZ), and FiberHome Technologies Group were down sequentially but grew revenues versus 1Q13. Coriant GmbH, Ericsson, Fujitsu, and Huawei Technologies Co Ltd. failed to reach their year-ago revenue levels.
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