Looking to the East
It's only partially a coincidence that interest in the Asian market began to peak at about the same time Western markets were well on their way into the tank. True, an opportunity as big as, say, China would be attractive at any time. However, the difficulty Western firms face when attempting to expand into such truly foreign territory might be sufficient to cool some companies' current ardor for the East were markets still fruitful at home.
So as I was walking around OFC last month and hearing from just about everyone that the market was picking up (not swinging, mind you—but picking up), I began to wonder how long Asia would remain the opportunity du jour. After all, KMI Research had reported earlier in the week at Asia Forum 2004 that capital expenditures (capex) in that region had started to flatten. Will Asia remain a hot topic beyond the next year or two—beyond when overall market recovery establishes itself?
Based on conversations with a number of sources, I would have to say yes. Certainly, the use of Asia's low-cost labor pool and manufacturing savvy will continue; regardless of how quickly the optical life improves, minimizing manufacturing costs will remain a primary concern for just about everyone. You can expect engineering activities to be outsourced to Asia as well.
However, what may happen is that China will no longer be the clear choice for outsourced assembly. Speakers at the Asia Forum touted Thailand as a less expensive option than China for manufacturing certain devices. One can envision that the governments of other Asian countries will seek to emulate China's success by undercutting that country's labor costs.
But the real question is whether the rewards of attempting to sell equipment in Asia will remain worth the risk for Western companies. While overall, Asian capex may flatten over the next several years, that plateau remains high enough to be lucrative. Several countries appear ready to make significant optical investments.
South Korea, for example, is ready to augment its well-publicized DSL broadband capabilities with fiber to the curb and, in the next few years, fiber to the premises, according to Hongbeom Jeon of Korea Telecom's Technology Investigation and Evaluation Center. Meanwhile, the government has backed an initiative aimed at establishing South Korea as a global production center for optical technology. Gwanju represents the epicenter of this activity; the government has earmarked about $750 million to create a photonics industry cluster there. A fiber to the home project in the city is expected to see the connection of 300,000 households by 2008 at a cost of $74.6 million. The South Korean government also hopes to see the industry cluster create expertise in semiconductor devices like LEDs and VCSELs for such applications as traffic lights and digital TV as well as research and development of the communications technologies regularly discussed on these pages.
Analysts and vendors also point to India as another emerging optical market. Some degree of competition among carriers has begun to appear in that country. One can also envision the need for very robust communications infrastructures if India is to remain an attractive option for outsourced call centers and software programming. Such requirements have led KMI to forecast that bandwidth demand growth in Asia will clip along at 37% this year, significantly better than the 23% expected for North America.
Couple these factors with stronger intellectual property protection initiatives and more in-country partners with experience working with Western firms, and Asia should continue to attract the attention of Western companies, regardless of how strongly home markets improve over the next several years. Having a choice of markets to penetrate is one bubble phenomenon this industry would not mind seeing return.
Next month, you're likely to see some new—and perhaps familiar—names in our pages. Thanks to a joint venture between Lightwave's parent company, PennWell Corp., and Institute of Physics Publishing Ltd., Lightwave Europe will merge with Fibre Systems Europe to create Fibre Systems Europe in association with Lightwave Europe (say that five times fast). For the European market, that means one magazine combining the strengths of Lightwave with those of Fibre Systems Europe. But for you, Lightwave's current readership, the alliance means better insight into the European market. That's because we'll have the opportunity to reprint material from Fibre Systems Europe in our publication.
We at PennWell are very excited about the potential for cooperation that the joint venture heralds, and I'm confident that you will greatly benefit from the additional perspectives we'll be able to present to you in Lightwave.
Stephen M. Hardy
Editorial Director & Associate Publisher