Optical networking markets 'primed for rebound in 2004' - study

23 July 2003 Providence, RI Lightwave Europe -- The optical-networking equipment market is set to rebound slightly in 2004 following a decline of 6% in 2003, according to KMI's new report Optical Networking: Worldwide Equipment Markets Update.

Jul 23rd, 2003

- "Most categories in 2004 will grow, with DWDM and optical cross-connects having some strong upward shifts."

23 July 2003 Providence, RI -- The optical-networking equipment market is set to rebound slightly in 2004 following a decline of 6% in 2003, according to KMI's new report Optical Networking: Worldwide Equipment Markets Update.

This year's decline should be slight compared with that of 2002. Last year the optical-networking equipment market (SONET, SDH, DWDM, DXC, and OXC) declined 53% to reach a value of USD 10.1 billion. That undeniable slump followed a 29% decline in market value from 2000 to 2001.

"Products within the optical-networking equipment mix will exhibit widely variable results," said KMI analyst Michael Arden. "The big losers in the 2003 market will be traditional SONET and SDH and cross-connects.

"Most categories in 2004 will grow, with DWDM and optical cross-connects having some strong upward shifts. Next-gen SONET and SDH will continue to build on their momentum since being introduced in 1999."

The 2002 market numbers reflect changes in regional activity and growing momentum in metro and other short-distance equipment deployments, which have resulted in market-share shifts in some categories.

North America and Western Europe were hit particularly hard by the telecom collapse while relatively buoyant China and Korea have helped to lessen the impact in the Asia-Pacific region. As a result, some domestic-focused companies in Asia, such as Huawei, saw some categories of equipment sales actually grow from 2001 to 2002, bucking the contraction trend suffered by most other equipment vendors.

In addition to the regional and distance trends that have emerged, the uptake in next-gen SONET and SDH versus traditional transmission system technology continues. Although SONET and SDH markets continue to decline, the next-gen segment has bucked trends and managed to see some growth.

The optical networking market will grow from USD 10.1 billion in 2002 to nearly USD 12 billion in 2007. This rebound will be at a growth rate well below those experienced in the years leading up to 2000.

More cautious spending by carriers, slower bandwidth demand growth, strategies to maximise existing networks, mergers and acquisitions of carriers, price erosion, and the availability of inexpensive divested assets will temper the rebound in optical-networking equipment.

Within the various equipment categories, next-gen SONET and SDH will have the strongest compound annual growth, averaging 17% from 2002 to 2007. DWDM will enjoy an 11% compound annual growth rate over that period, and optical cross-connects will grow at a 9% rate.

Digital cross-connects and traditional SONET and SDH equipment will all lose market value over the 2002 to 2007 period. Traditional SONET and SDH will decline at a compound annual rate of 38%, while DXCs decline at a five-percent rate. The pick up in next-gen SONET and SDH will be a major factor in the decline in both equipment categories.

Optical Networking: Worldwide Equipment Markets Update provides an overview of the optical-networking equipment market and forecasts the market through 2007. Equipment categories in the report include SONET, SDH, DXCs, OXCs, and DWDM. Analysis includes market-share estimates for 2002 in all equipment categories and in distance and regional sub-categories for all equipment types.

KMI Research
KMI Research provides optical networking intelligence through its market reports, semi-monthly newsletter, and conferences on fiberoptics markets. Optical Networking: Worldwide Equipment Markets Update can be ordered online at www.kmiresearch.com

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