How long until the long term?

Th 78462
Th 78462
Stephen M. Hardy
Editorial Director and Associate Publisher
stephenh@pennwell.com

With 2001 clearly a year that most in the optical communications space would like to forget, several of the industry's major players arrived at KMI's 24th annual Newport Conference on Fiber Optic Markets looking for some good news about 2002. And when they didn't get it, they weren't happy.

The outlook for fiber manufacturers was particularly grim. After a first half that promised record demand, the second half of 2001 showed a complete reversal in the market. Reported KMI's Patrick Fay, many operators canceled orders-and some even tried to sell fiber back to their suppliers. The outlook won't improve right away, according to KMI. The market is expected to remain essentially flat-with the current downward trend continuing next year-until at least 2005.

The primary culprit is a drop in the long-distance market, with a lack of new network builds in this space more than offsetting any growth in metro and cable-TV networks. This drop is not just a U.S. phenomenon, as pan-European network builds are expected to slow as well.

The lack of good news for fiber manufacturers sparked a level of skepticism that, in some instances, bordered on belligerence. Audience members demanded that the KMI analysts justify their predictions and provide data that compared the firm's previous forecasts with actual market performance. While one wonders whether the same calls would have been issued had the forecasts been rosier, it seems that the changes in attitudes toward market research that were the subject of last month's editorial may indeed be taking place.

I see an increased focus on responsibility as a healthy trend-and one that will be necessary in the next year, as the industry sorts through the uncertain road toward recovery. Another analyst, Robert Farmer of Strategies Unlimited, highlighted how uncertain that journey may be. Farmer took a look at Internet usage assumptions to see if the standard "100% annual growth" statements from last year were more than just hype. Farmer looked at statistics compiled by Nielsen (yes, they're doing Internet ratings now, too). Nielsen reports that the number of Internet users in the United States has grown 32% annually from 1999 through the middle of this year. The number of hours "surfed" each month has doubled over the same time frame, and the total number of page views has risen 137% annually as well.

The good news is that these statistics do indeed track with the notion of 100% annual Internet bandwidth growth. However, Farmer said the data also raises a few points of concern. For example, the compound annual growth rate in page views has dipped from 480% through the latter half of 1999, and 230% in the last quarter of 2000, to 31% in the first half of this year. This flattening occurs over too short a time to be sure of a trend, but it certainly bears watching, Farmer said.

Similarly, while the number of residential broadband users in the United States has quadrupled over the last 18 months, the quarterly increase between April and June of this year slowed dramatically. Again, not necessarily the sign of a significant downturn but a point of concern nonetheless.

Despite the seeming preponderance of bad news, the analysts remained optimistic about the long-term future of optical communications. But it looks like the long term may be longer in coming than some expected.

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