Ovum RHK: Optical networking market has best quarter in six years

AUGUST 14, 2007 -- The news wasn't so good concerning North American wireline capex during the same time period.

AUGUST 14, 2007 -- Ovum RHK (search for Ovum RHK) has announced its preliminary analysis of second-quarter 2007 results for optical networking equipment vendors. In 2Q07, global revenues rose 14 percent versus 1Q07 and 20 percent versus the year-ago quarter to $3.5 billion.

"Results were positive across all regions and all next-generation product segments; thanks to AT&T, spending was strong even in legacy long-haul DWDM. Continued slow spending in the Japanese market provided the only real disappointment, with local vendors, most notably Fujitsu, bearing the brunt of the stagnation there," noted Dana Cooperson, vice president, network infrastructure, at Ovum RHK. "Annualized spending reached $13.2 billion. Top 10 vendors who posted the best 2Q07 results included Alcatel-Lucent, Ciena, Huawei, NEC, and Tellabs, which enjoyed exposure to some or all of the following: the seasonal rebound in spending by Chinese customers; growth in North American metro and backbone DWDM deployments; and general spending strength in EMEA."

2Q07 highlights for the optical networking equipment market included:

  • Global spending grew 14 percent versus 1Q07 and 20 percent versus 2Q06 to $3.5 billion.
  • Growth in metro WDM spending continues, topping $2.4 billion annually and erasing last quarter's previous record of $2.2 billion.
  • Backbone DWDM spending also set records, with annualized next-generation backbone equipment spending exceeding $1.9 billion, 82 percent growth over the period ending 2Q06.
  • The undersea market shows continued signs of recovery, with annualized terrestrial line termination equipment spending topping $300 million, a 21 percent increase over 1Q07.
  • The creation of "megavendors" Alcatel-Lucent, Ericsson, and Nokia Siemens Networks continues to shift competitive dynamics, with competitors trying to counter these large vendors' end-to-end, service, and equipment value propositions with specialist approaches.
  • Alcatel-Lucent remained the only vendor with over 20 percent share; it grew revenues 23 percent sequentially and 30 percent over 2Q06.
  • Huawei posted the largest sequential gain (56 percent) of the Top 10 vendors due to seasonal strength in China and improving results around the globe.

However, the news wasn't so good for North American wireline spending in general, according to another Ovum RHK analyst. Wireline operators in North America decreased capital spending by 2 percent versus the second quarter of 2006, while mobile operator capital spending increased by 4 percent. Revenues remained on trend with mobile revenue growing 12 percent growth, and fixed revenue basically flat versus last year.

Oddly enough, given Cooperson's comments about its role in the optical communications up tick, John Lively, vice president, forecasting, put the blame squarely on AT&T for the downturn.

"North American wireline capital spending in the first half of 2007 is down nearly 7 percent compared to last year, due largely to AT&T spending cuts resulting from it merger with BellSouth," said Lively. "Sprint and Qwest also cut spending, while Bell Canada, Embarq, Telus, and Verizon spent more than last year. Overall, Ovum RHK expects capital spending growth remain stalled through the rest of 2007 and into 2008."

Wireline revenues equaled $43.6 billion in 2Q07, up 0.2 percent versus 2Q06, according to Ovum RHK. Wireline capex came in at $7.1 billion, down 5.3 percent versus 2Q06.

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