Our 2008 Top 5 companies are prepared for 2009

by Stepehn Hardy and Megan Fuller Hanna

OVERVIEWLightwave's editors rank the Top 5 companies in the systems and components/subsystems spaces for 2008. Will last year's success mean anything in 2009?

With so much attention on the current economic downturn, it may be difficult to recall that 2008 initially was shaping up to be a great year for companies in the fiber-optics industry. In an attempt to remind you of those golden days of just last year, we on the Lightwave editorial staff once again offer our annual selections of the Top 5 companies in optical communications systems and components/subsystems. As usual, we gave a lot of weight to 2008 annual sales—but overall momentum, activity in mergers and acquisitions, and technological innovation in some cases enabled companies to leapfrog those above them on the market share pecking order.

As we just mentioned, things were actually going fairly well last year for components and subsystems suppliers before the recession hit. Sure, executives continued to grumble about margins and their valuations. But market research firm LightCounting (www.lightcounting.com) forecasted a record year for transceiver sales in 2008, despite an expected 5% to 15% decline in sales for the fourth quarter of the year.

Analysts across the board expect continued trouble this year, with company consolidation a likely result. Our Top 5 component and subsystem companies for 2008 took advantage of the strengthening market to get a jump on the consolidation trend.

This activity led to a new name in the Number 1 position. Finisar (www.finisar.com) used its merger with Optium to vault the company into the top spot in Ovum's (www.ovum.com) rolling four-quarter market share figures through Q3 2008. It also married Finisar's strength in datacom products with Optium's telecom portfolio. Meanwhile, the company continued to expand into new areas, with its LaserWire active optical cable offering an example.

Finisar's ascendancy left JDSU (www.jdsu.com) to contemplate its new role as the second largest supplier in the components and subsystems market. The former top dog still had plenty of bite in 2008; its AON Super Transport Blade provided one of the more salient examples of innovation among the new products introduced at OFC/NFOEC. While JDSU's test group got into the consolidation spirit with acquisitions of Westover Scientific and Circadiant Systems, its optical communications arm was much quieter. In the wake of a reorganization in late October that saw President and CEO Kevin Kennedy leave for Avaya, perhaps the company's new management, led by Thomas Waechter, will be more aggressive in 2009.

Our third company, Opnext (www.opnext.com), also took the M&A route to expansion. Its acquisition of StrataLight Communications boosted the company's portfolio of 40- and 100-Gbps technology and positioned it to be a major player in what should be a burgeoning market niche. Opnext rose one notch on Ovum's market share rankings to third as well.

Meanwhile, Sumitomo (www.sumitomo.com) disproved the notion that Japanese companies aren't willing to participate in consolidation. Our fourth-ranked company ended 2008 by announcing that it would acquire Fujitsu's share of Eudyna Devices Inc. Eudyna, formerly a joint venture between Sumitomo and Fujitsu, will become a wholly owned subsidiary of Sumitomo if the transaction closes as planned. The December announcement forecasted April 1, 2009 as the expected completion date. Meanwhile, Sumitomo continued to maintain a steady sales pace, having surrendered its third-place ranking on Ovum's market share list to the newly beefed up Opnext by less than a percentage point.

Bookham (www.bookham.com) squeaks into the last spot on our Top 5. Although other companies, such as Avago Technologies (www.avagotech.com), Emcore (www.emcore.com), and Source Photonics (www.sourcephotonics.com) had larger market shares according to Ovum (albeit by just 0.1%, in the case of Emcore and Source), we gave Bookham the final seat at our table for accomplishing something many observers thought would never happen—a profitable quarter. The company also reduced its reliance on sales from Nortel (clearly a good move, in light of that company's bankruptcy filing) during the year while keeping the new products flowing. Its impending marriage with Avanex (www.avanex.com) should make it fifth in market share, according to Ovum. But that's a matter for next year's Top 5 article.

In this space last year, we noted that 2007 had been a banner year for optical systems vendors; it saw the niche's highest revenues since 2001. By contrast, 2008 will likely be remembered as the year Nortel (www.nortel.com) stuck a “For Sale” sign in front of its Metro Ethernet Networks (MEN) division before filing for bankruptcy in 2009. The fate of Nortel will undoubtedly shape the market this year and beyond.

In the meantime, Alcatel-Lucent (www.alcatel-lucent.com) once again tops our list of optical systems vendors. The company entered 2008 on the heels of a record quarter in which its revenue broke the $1 billion mark. As the primary supplier to Verizon's FiOS network, Alcatel-Lucent ranks first in worldwide GPON deployments; its lead is so formidable, in fact, Infonetics Research (www.infonetics.com) says it accounted for almost half of all GPON revenue in 3Q08. The company continues to innovate in the access, metro, and long-haul markets and appears to be holding steady in the submarine market as well. Finally, Alcatel-Lucent began the year with a new management team dedicated to forming a new company identity.

Huawei (www.huawei.com) leaps into the second position on our list, despite its lack of traction in North America—though Ovum analysts say that may have worked in Huawei's favor in 2008. With the bulk of its revenues coming from Asia-Pacific and EMEA, Huawei has had little exposure to the softening North American market. As such, the vendor was able to post numbers almost equal to its 2007 mark. Had Huawei consummated its rumored deal for Nortel's MEN division—which was stopped amid security concerns—the Chinese vendor may well have topped our list this year.

Despite bankruptcy, Nortel captures a third-place ranking on the strength of its high-speed networking activity. The company reportedly has more than 30 customers for its dual-polarization quadrature phase-shift keying (DP-QPSK)-based 40G system, which it launched in April. The OIF's decision to adopt DP-QPSK as the modulation format for 100G further suggests that Nortel may have an advantage over the competition. The company trialed its 100G technology with Verizon in October. It has also made inroads into the much-hyped WDM-PON market. Nortel claims it is involved in 10 WDM-PON trials in Europe, Asia, and North America.

At press time, Nortel announced that it would put the MEN divestiture on hold while it attempts to restructure. The company says it should have a solvency plan in place by May.

Fujitsu (www.fujitsu.com) earns the fourth spot on our list thanks in part to its strength in ROADM technology. Fujitsu is also among the more vocal packet optical network platform (PONP) vendors and scored a big win when Verizon selected its FLASHWAVE 9500 for use in the FiOS network. Analysts estimate the contract could be worth $500 million over the next several years.

Nokia Siemens Networks (www.nokiasiemensnetworks.com) slips into the number five spot this year, just ahead of Tellabs. Like others on this list, Nokia Siemens made headway in the high-speed networking market; in its second quarter report, Dell'Oro (www.delloro.com) ranked the vendor first in 40-Gbps wavelengths shipped. At ECOC, Nokia Siemens announced details of a 100-Gbps trial with Verizon in which the companies transported 100-Gbps traffic on a single wavelength for more than 1,040 km over field fiber in Dallas, TX, setting what they claim was a new distance record.

Looking forward, 2009 should be all about Nortel. Whether or not it can bounce back from bankruptcy amid a global recession, the company's fate will alter the system vendor landscape. Which means our Top 5 list next year may look markedly different.

Lightwave Channel: Interview with Finisar's Jerry Rawls
http://lw.pennnet.com/video/on-the-scene-show-coverage.cfm?bcpid=1785324705&bclid=1461295779&bctid=1460758845

Lightwave Channel: Interview with Bookham's Alain Couder
http://lw.pennnet.com/video/on-the-scene-show-coverage.cfm?bcpid=1785324705&bclid=1461295779&bctid=1520990953

Lightwave Online: Ovum: Optical Networking Tops $4 Billion in 4Q08
http://lw.pennnet.com/display_article/353863/13/ARTCL/none/none/1/Ovum:-Optical-networking-tops-$4-billion-in-4Q08/