The fiber line forms to the right

Th Acf366
Th Acf366

Want fiber? Get in line and be prepared to wait. That was the message delivered at the 23rd Annual Newport Conference on Fiberoptics Markets held in October by KMI Corp. (Both KMI and Lightwave are owned by PennWell Corp.) As usual, the conference drew representatives from major fiber producers and users from around the world (as well as component suppliers, systems designers, and the now requisite gaggle of financial analysts).

To most attendees, the discussion of fiber shortages confirmed their own experiences. According to KMI analyst Patrick Fay, contract customers accustomed to three- to four-week delivery cycles now face waits as long as 12 weeks. Non-contract customers may have to wait well over a year, he reported.

The increasing demand for bandwidth and the worldwide trend toward deregulation that have driven the expansion of optical networking also take the blame for the fiber shortage. The growth in the number of new carriers and liberalized markets, plus higher fiber counts per project, have combined to create a requirement for fiber-optic cable that has quickly outstripped supply. This demand shows no signs of slowing, according to Fay; KMI forecasts that a 29% compound annual growth rate in worldwide demand will see fiber requirements more than double over the next four years to a figure that surpasses 225 million fiber-km by 2004.

North America continued to lead worldwide cabled-fiber demand this year, accounting for 41% of the total market. Western Europe represents 20% of this year's market, with the Asia-Pacific region accounting for 28%.

This growth in demand has occurred against a backdrop of consolidation in the fiber-production industry. The number of major industrial producers of fiber has shrunk from 10 to eight over the last two years, reported Fay. Recent examples of consolidation include Corning's acquisition of Siemens's share of Siecor, the merger of Draka and NK Cables, and Lucent Technologies' acquisition of SpecTran.

Despite these consolidations, the total number of fiber-production facilities is growing, as is the capacity of individual facilities. By 2002, Asia and Europe are expected to lead the world in the number of production plants capable of producing at least 1 million km annually, with 18 and 15 facilities, respectively. However, even though KMI forecasts that North America will have only seven such facilities by 2002, those seven will be working overtime, making the region the leading fiber producer with 39% of the predicted volume. KMI expects Corning to maintain its current lead in manufacturing capacity over the next two years; the company will nearly triple its capacity from 1999 levels by 2002, according to KMI. Lucent (which is expected to double its capacity) and Alcatel (which will triple its capabilities) are forecasted to hold the second and third slots, respectively, among individual companies.

Despite the increase in demand and the shortages that this phenomenon has caused, fiber prices have remained relatively stable, Fay reported. Prices for bare conventional singlemode fiber in North America have hovered near $35 per kilometer this year for large-volume contract customers, while European prices have ranged from $32 to $35 per kilometer in what Fay termed "the last several months." He pegged Asian prices for the year at $40/km.

Overall, Fay predicted the current fiber shortage will continue for another two years. Of course, this prediction came before Wall Street and other financial markets turned on the optical communications industry in a selling frenzy reminiscent of the roller coaster Ciena found itself riding in 1998. As Richard Mack, KMI's vice president and general manager, noted in the conference's opening address, the ready availability of money has become nearly as influential a factor as deregulation and bandwidth demand in the momentum behind the optical communications juggernaut, so the sudden downturn is cause for concern.

However, the financial markets can't stop deregulation and bandwidth requirements, so while spending may slow, it's not going to stop. The line to wait for fiber will continue to exist-it just may move faster than expected.

Stephen M. Hardy
Editorial Director and
Associate Publisher
stephenh@pennwell.com

More in Earnings Statements