Optical-component growth to hover around 30% this year

March 1, 2003

When the telecom bubble burst in 2001-02, component manufacturers were affected even more than systems manufacturers, due to the huge component inventories that had accumulated during the boom years. A new report from Strategies Unlimited (Mountain View, CA) asserts that the inventory burnoff will be completed this year, and growth is expected to resume. The optical-component market will experience a 30% year-over-year increase in dollar volume as inventories are depleted and new system orders come in.

"When we reviewed the market situation last April, we predicted that this market would begin turning around by 2003," contends Tom Hausken, optical components practice director at Strategies Unlimited. "Our updated analysis reaffirms this prediction. The market will by no means return to the heyday of 2000 anytime soon. Even with 30% growth, we project component vendors' revenues in 2003 at $2.1 billion, far below the $9.1-billion peak we saw in 2000. Nevertheless, this is welcome news for component providers."

The steep drop-off in business over the past two years has led to an industry shakeout. Established vendors like Agere Systems as well as numerous startups have left the industry; with fewer players in the market, those who remain stand a better chance of long-term survival.

Growth in the optical-component sector beyond 2003 should be more sustainable as the industry pursues a more modest set of expectations, say analysts. Carrier capital expenditures are expected to rise in 2004, as new equipment is purchased to help meet carriers' headcount reduction targets and fulfill continued growth in customer demand. Though delays in new builds have had devastating results for suppliers, equipment upgrades will be made, and these upgrades will provide gradual relief for the industry.

For more details on the report, "Optical Networking Components: 2003 Market Outlook," call 650-941-3438 or visit www.strategies-u.com.