Is high–speed networking impervious to the downturn?

by Stephen Hardy

With the global economy in a tailspin, many optical communications companies have lowered their revenue expectations under the belief that carriers will curb their capital expenditures (capex). However, before the fiber–optic community begins preparations for another Ice Age, several market research firms suggest that the capex climate for the rest of this year and into 2009 will be significantly warmer than the industry experienced in 2002. That's because the disparity between bandwidth demand and available capacity isn't as significant now as it was when the Internet bubble burst, they say.

A new report from Infonetics Research, "10G/40G/100G Market Size and Forecasts," illustrates this viewpoint. The report covers SONET/SDH, Ethernet, and other port types across such platforms as enterprise Ethernet switches, routers, and application switches; service provider routers; Carrier Ethernet switches; WDM and SONET/SDH optical equipment; PON OLTs; CMTS; and multiservice ATM switches. It addresses both port counts and associated revenue.

According to the report, the outlook from 2008 through 2011 for equipment operating at 10 Gbits/sec is pretty rosy. The market for 10 Gbits/sec is expected to hit $9.5 billion this year; 40–Gbit/sec revenues should be over $1 billion in 2008 and expand at a compound annual growth rate (CAGR) of 59% between 2007 and 2011.

What happened to the recession? Michael Howard, principal analyst and co–founder of Infonetics, says his figures do take into account the wobbly financial picture in place when the report was issued last month. He concedes the possibility that the economy could tumble further; however, he remains bullish on bandwidth demand.

"To date, it looks like the bandwidth traffic is going to continue to grow. It may slow some, but it's not going to slow as a reflection of how bad the banking industry is now," Howard says. Thus, while people and companies will have less to spend, they'll continue to use high–bandwidth services and pass videos back and forth to each other. "That kind of habit is not going to go away until carriers start charging more for their bandwidth—and they can't because there are too many competitors," Howard explains.

The continuing increase in bandwidth demand will force carriers to maintain capex at a level that will foster revenue growth for high–speed equipment markets, Howard believes. The fact that service providers and network managers can achieve operational efficiencies via higher–speed interfaces—particularly at 10 Gbit/sec but even at 40 Gbits/sec—will make these capex spends more palatable.

40G has a place

Platforms that support 10 Gbit/sec will dominate the market during the forecast period, both in port count and revenue. But Howard foresees a healthy demand for 40–Gbit/sec platforms in both carrier and enterprise networks.

"This is the first year that all major optical manufacturers have 40–gig equipment. And the prices this year are getting close to parity with 4x10," Howard says. "The current RFPs that are getting bid are like 4x and 5x10 gig. So the fact that there's competition in the market and the prices are at a reasonable parity level is causing the market to be a good size this year."

The advent of 100–Gigabit Ethernet standards and equipment won't kill the 40–Gbit/sec equipment market, either. Availability and cost favor 40 Gbit/sec, Howard says. He predicts 100–Gbit/sec won't achieve "reasonable" pricing until 2012 or 2013.

Stephen Hardy is the editorial director and associate publisher of Lightwave.

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