LightCounting: Slow 2011 start for optical components doesn’t mean market bust

While a 30% jump in 2010 sales, followed by the weakness experienced this year may cause concerns about another bubble bursting, LightCounting says such fears don’t take into account changing market dynamics, particularly improved inventory control.

While a 30% jump in 2010 sales, followed by the weakness experienced this year may cause concerns about another bubble bursting, LightCounting says such fears don’t take into account changing market dynamics, particularly improved inventory control.

The disconnect between the growth in component sales and the sustainable level of optical networking infrastructure expansion, which resulted in excess inventory of components after the market crashed in 2001, is not in place today, LightCounting says. Inventory management across the whole supply chain has improved significantly over the last decade, the market research firm says, as the industry worked to reduce cost and improve profitability.

Manufacturing of optical components also has improved, but remains unable to respond smoothly to changing demand across a variety of products. For example, component suppliers were struggling to ramp up production as demand picked up in 2010, Light Counting says. Lead times for some products doubled or tripled during the year, creating shortages and forcing customers to increase inventory reserves. However, these constraints were largely limited to specific product categories such as 40-Gbps components and wavelength-selective switches (WSSs), LightCounting asserts.

The slowdown in sales of optical component and modules in early 2011 has also been limited primarily to the same product categories, LightCounting asserts. There is very little, if any, excess inventory of components accumulated across the broader market according to information obtained by LightCounting.

“Sales of most products remained steady in early 2011 and they are clearly picking up in the second half of 2011,” commented Vladimir Kozlov, founder and CEO of LightCounting. “Fibre Channel and Ethernet transceivers declined in Q1 2011, but stabilized in Q2 and sales of 10 Gigabit Ethernet transceivers continue to grow fast. Telecom transceiver market remained steady in Q1 2011, but it declined further in Q2 mostly due to lower sales of 40G client-side modules. We expect that by the end of this year, the telecom market segment will be strong again and we are certainly looking forward to a really good year in 2012.”

LightCounting promises a detailed analysis of the optical communications market, based on confidential sales data provided by more than 20 leading vendors, in a new LightCounting Market Update report to be released on September 26, 2011.

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