Ovum: optical components revenue up 5% sequentially in 2Q08

SEPTEMBER 23, 2008 -- Despite financial markets uncertainty, traffic growth, dominated by IP data, continues.

SEPTEMBER 23, 2008 -- Preliminary results from Ovum's (search for Ovum) quarterly optical components market tracking indicate that the optical components market posted its fourth consecutive quarter of single-digit growth with an increase of 5% sequentially.

"Impressively, the market posted a 23% gain over the same period last year, in part because 2Q07 was hard-hit by inventory corrections," says Daryl Inniss, Ovum practice leader and author of the study.

Inniss warns that these gains are tempered by the recent turmoil experienced in the financial markets--including the sale of Merrill Lynch, bailout of AIG, and bankruptcy of Lehman Brothers.

"The events are sufficiently large that the telecom market will likely be affected. But even before these events, optical components vendors were seeing evidence of market softness," he notes.

Avanex, for example, guided to lower 3Q08 sales due in part to the slowdown in Asia. JDSU reported market uncertainty due to economic conditions, citing changes in the purchasing behavior of North American carriers as examples. At the optical networking level, both Nortel and Ciena have lowered their guidance. Still, Inniss says, "Notwithstanding market uncertainty, traffic growth, dominated by IP data, continues."

According to the report:

• Among the top ten suppliers, Opnext gained the most share on a quarterly basis, followed by Source Photonics and JDSU. Opnext's growth was driven by demand for 10-Gbit/sec transponders and transceivers. Its 40-Gbit/sec transponder revenues were approximately flat quarter-over-quarter, but it is running at near capacity; expect capacity expansion in quarters to come, says Inniss. "The StrataLight acquisition, scheduled to close in October or November, promises to provide Opnext with larger revenues and strength in 40-Gbit/sec transmission and transmission subsystem products," he contends.

• Source Photonics posted one of the best performances of the top ten OC suppliers. Ovum estimates growth is coming from PON to support new deployments, in China for example. But because of its IPO filing, limited information was available for the company.

• Finisar continues to report growth driven by demand for datacom transceivers, citing particularly strong sales of longer distance transceivers in the quarter. It also saw strong demand for VCSEL products.

• JDSU grew 7% sequentially, driven by sales of its agile optical network products.

• Avanex posted 5% sequential growth driven by demand for transmission products (transceivers, transponders, and modulators). But, notes Inniss, its regeneration business, which includes amplifiers, experienced a 12% sequential decline. Avanex's guidance for 3Q08 anticipates a sequential revenue decline, the consequence of the market slowdown in Asia, strong price declines, and reducing sales on some low-margin legacy products.

• Sumitomo, Bookham, and Fujitsu are the only vendors in the top ten that posted sequential declines. Fujitsu jumped into the top ten, displacing Oplink--a consequence, in part, of Oplink's 9% quarterly revenue decline. Oplink's acquisition of OCP led to the discontinuation of some products, which contributed to the revenue drop.

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