Ovum expects optical component sales to exceed $10B in 2018

Driven by increases in demand for WAN and datacom applications, sales of optical components will grow 4% this year and at a compound annual growth rate (CAGR) of 8% between 2012 and 2018, says Ovum. The result, according to the market research firm, will be a record revenue milestone of $10.5 billion in 2018.

Ovum did not predict how many optical component firms will still be around at that time, or whether any of them will be turning a profit.

The revenue predictions were revealed in Ovum’s new Total Optical Components Forecast: 2012–18. Data center and enterprise network demand will be the major growth catalyst, as these applications adopt 10G, 40G, and 100G transmission rates for server, switch, and storage connectivity.

“Demand to support data centers for cloud services is a large driver for datacom sales, and high-speed transceivers are needed to support this segment,” explains Daryl Inniss, practice leader of components at Ovum and author of the forecast. “Datacom is looking at a 16% CAGR between 2012 and 2018.”

In the WAN, which remains the largest optical component market segment, annual double-digit traffic growth is leading to high demand for 100G ports. ROADM sales are expected to continue to expand worldwide as well, Ovum believes.

On the other hand, demand from the access segment – which includes FTTx, CATV, and optical transceivers to connect base stations to antennas (“fronthaul”) – is shrinking, thanks primarily to the maturation of FTTx deployments. “We expect stable performance from fronthaul and CATV throughout the forecast period, but the access segment as a whole is expected to decline at a 7% CAGR due to contracting FTTx revenues,” Inniss says.

The increasing instances of vertical integration won’t help optical component revenues, either. “Datacom has depended on component vendors delivering standards-compliant products, but equipment vendors are now developing their own components,” Inniss notes. “In a sense, component suppliers are now competing with their own customers. The OC revenue outlook depends on OC suppliers’ ability to drive out cost and deliver products at scale and in a timely manner. While excellent OC execution minimizes the impact of vendors’ captive supply, poor execution reduces the OC vendor revenue opportunity.”

For more information on optical components and suppliers, visit the Lightwave Buyer’s Guide.