Dell'Oro Group: Fiber Optic Markets Continue to Grow

The thirst for bandwidth continues. According to Shin Umeda, research analyst for the Dell'Oro Group (Portola Valley, CA), the overall optical market grew at a rate of 14% to $5.9 billion during the second quarter of 2000

By MIKE DOWNING

The thirst for bandwidth continues. According to Shin Umeda, research analyst for the Dell'Oro Group (Portola Valley, CA), the overall optical market grew at a rate of 14% to $5.9 billion during the second quarter of 2000. "Dell'Oro covers DWDM-metro, DWDM-long haul, and SONET/SDH," he told Lightwave. "We're seeing good growth across all of those segments."

Nortel continues to dominate the overall fiber-optic market. According to Umeda, the company's internal revenue estimates for this year are in the range of $10 billion. In contrast, the company reported less than $5 billion in fiber-optic revenue for 1999. "There are several reasons for Nortel's success," he said. "The most important factor is their 10-gigabit system. They have 10-gigabit equipment for both SONET and DWDM. They've had that technology on the market since 1997. That's enabled Nortel to take such a commanding lead in the fiber-optic communications space."

Umeda said that Nortel was able to recognize the need for 10-gigabit technology before the rest of the market. "They made the decision to go to 10 gigabits in the early 1990s," he said. "I don't believe they had any more information–particularly about the Internet–than anyone else. I think it was a combination of good planning, hard work, and a little bit of luck."

As a result of this advantage, Nortel owns approximately 90% of the DWDM-long haul market. "They are well ahead of all the competition," said Umeda. In addition, because the technology is very expensive, Nortel's revenues are consistently high. "They know how to manufacture and they know how to get product to market," he said. "Some companies have good technology but have a very difficult time getting product to market. Nortel doesn't have that problem."

In addition to Nortel, other vendors showing significant quarter-to-quarter growth in the overall optical market were Ciena and Cisco with 28% and 53% growth respectively.

Umeda said that although DWDM-long haul continues to generate the most revenue in terms of pure dollars, the relatively new DWDM-metro market grew at a rate of 40% for the same quarter. "The DWDM-metro market grew to $80.9 million during the second quarter," he said. "We expect that market to continue to expand rapidly for the next several years."

As you might expect, Nortel maintained its lead in the DWDM-metro space by growing its revenue 18% to $25 million. Nortel is one big gorilla, generating more than twice the revenue of its nearest competitor, Ciena. For its part, Ciena posted quarter-to-quarter growth of 73%, while third-ranked ONI grew at a rate of 160% (from $3.7 million to $9.5 million). Umeda said that OC-48 continues to be the most popular speed shipped.

The only company that failed to post gains in the DWDM-metro space was Sorrento. "Sorrento has not announced its earnings for the quarter ending in July," said Umeda. "So we had to publish an estimate. But when you look at the numbers for the preceding four quarters, you see that the company has not been growing at all. Sorrento is a smaller company [$4 million in revenue] that hasn't had a lot of success getting into the larger accounts."

Umeda says he expects steady growth in all optical segments during the next few years. "The thirst for bandwidth is driving fiber-optic applications," he said. "Particularly with DWDM, where you can take an existing fiber and obtain 16 times the bandwidth of a SONET device. That gives you dramatic cost savings. And making the technology more cost-effective is the name of the game."

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