Optical networking market shows sign of life in metro DWDM

June 27, 2001
June 27, 2001--Despite numerous layoff announcements, downward revisions in corporate earnings forecasts and major increases in inventories as sales declined in the first quarter of this year, the intermediate- and long-term prospects for the optical networking market are encouraging, according to Cahners In-Stat Group.

Despite numerous layoff announcements, downward revisions in corporate earnings forecasts and major increases in inventories as sales declined in the first quarter of this year, the intermediate- and long-term prospects for the optical networking market are encouraging, according to Cahners In-Stat Group, a high-tech market research firm. In-Stat projects that optimism lies in the Dense Wavelength-Division Multiplexing (DWDM) systems market, with much of the short-term sales growth in that market coming from metro carriers, the newest market for the technology.

"DWDM equipment acts as a capacity multiplier in adding more data channels to existing optical fibers. As such, DWDM systems and equipment serve as a sensitive bellwether for the entire optical networking market," said Richard Cunningham, senior analyst with In-Stat's Optical Networking Group.

During 1999 and 2000, carriers installed a huge amount of fiber, leaving them with a large inventory of dark fiber, specifically in the long-haul market. As a result, In-Stat expects the installation of fiber to slow markedly. "The inventory of dark fiber offers solid opportunities for DWDM system manufacturers as their products allow carriers to increase capacity by lighting unused fiber rather than laying new fiber," said Cunningham.

In-Stat predicts that the long-haul portion of the DWDM market will take a hit in 2001, before recovering in 2002 and beyond. The metro market, unlike the long-haul segment, does not have a significant amount of dark fiber and continues to be a chokepoint in optical network deployment, making it ripe for growth.

In-Stat also found that:

-- As recently as 1999, there was no market for DWDM equipment in the metro market. In 2000, however, the market sprouted and reached about $900 million. Vigorous growth from a small base in DWDM metro applications will mask an annual decline of 12 percent in the DWDM long-haul market for 2001.

-- Sales of DWDM systems will grow modestly from $7.8 in 2000 to $8.6 billion this year and then resume fast growth in 2002. By 2005, this market will be worth nearly $21 billion per year.

-- Data-intensive Internet use continues to rise and drive demand for increased network capacity at rates in excess of 100 percent per year. Although down from 300-400 percent growth rates of 1997 and 1998, it's still high enough to drive steady growth through at least 2005, assuming the industry can soon burn off excess inventory.

The report, "DWDM Systems: Market Power Encounters Limited Traction," is the first report in In-Stat's new Optical Networking Service. The report provides a worldwide forecast of the DWDM systems market and provides vendor profiles for major players. The report is available for $3,495.

About Cahners In-Stat group:

Cahners In-Stat Group covers digital communications research from vendor to end-user, providing analysis and perspective. For more information, visit www.instat.com.

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