U.S market for DWDM subsystems to grow to $3.67 billion in 2005, reports CIR

Apr. 25, 2001--The slowing of the economy will require that Dense Wave Division Multiplexing components manufacturers recast their strategies to reflect the cost saving aspects of their products rather than invent new bandwidth boosting technologies.

According to a new report by Communications Industry Researchers, Inc., (CIR) an optical industry market research firm based in Charlottesville, Virginia, the slowing of the economy will require that Dense Wave Division Multiplexing (DWDM) components manufacturers recast their strategies to reflect the cost saving aspects of their products rather than invent new bandwidth boosting technologies.

However, despite harder times and the realization that five-fold growth will not happen as soon as some analysts may claim, CIR expects the U.S market for DWDM sub-systems - excluding amplifiers - to grow from $855 million in 2001 to $3.67 billion in 2005 (see Exhibit below). These figures, as well as the analysis in the report, are based on interviews with the ultimate consumers of DWDM components and sub-systems equipment vendors who purchase components and not just interviews with components/sub-systems manufacturers.

The new report, "DWDM Sub-systems and Components: Markets and Trends," claims that in more bullish times, DWDM components and sub-systems could be marketed to equipment vendors on promises of the extra bandwidth which lead components and sub-systems manufacturers to focus on exotic technologies that could push data rates achieved on fiber closer to their theoretical limits. Examples of such technologies include the use of bandwidth outside of the C-band, utilization of exotic materials to pump data rates up to 40 Gbps and beyond, and some advanced amplifier technology.

However, in today's cost-sensitive marketplace, DWDM components manufacturers would be better advised to promote cost savings instead of bandwidth boosts. And, the new CIR report says this economic necessity will be additionally reinforced by the growing focus of the DWDM business towards the metro and access segments - which are cost sensitive in both the good times and the bad.

Changes Needed in Marketing, Technology and Service

According to the report, the strategic change that the new marketplace circumstances will force on DWDM components and sub-systems manufacturers will have implications for both marketing and technology planners. On the marketing side, tighter markets will require more aggressive marketing and CIR cites Hitachi Cable and Excelight as examples of companies needing to improve upon their message. CIR also notes that JDS Uniphase, although the dominant player in this space, received poor marks for customer service from many of the equipment vendors to which it sells. But, CIR says that the most successful marketers will be those whose story resembles, "We can reduce the cost of your systems," rather than "We can make you go faster."

"DWDM Sub-systems and Components: Markets and Trends" claims that DWDM components and sub-systems manufacturers will be able to reinforce this message as they make evolutionary improvements in two potentially disruptive technologies: tunable lasers and photonic integration. In both cases, these technologies appear to open up a long term and successful pathway to the all-optical network, but CIR believes that the current implications of these technologies are less dramatic, but nonetheless just as important.

CIR sees the immediate selling feature for tunable lasers as their ability to cut inventory costs at the equipment manufacturers' plant and at the central office. In the longer term, applications for tunable lasers could include optical packet switches and remote tunability. The problem is that most equipment manufacturers are still shying away from the use of tunable lasers because of worries about their long-term reliability. CIR suggests that, in the current economic climate, tunable laser manufacturers should focus on the reliability issue more than futuristic techniques and says that companies that have been especially impressive in this regard are Nortel HPOC, Agere Systems, New Focus, ADC, Agility, Corning and JDS Uniphase.

Photonic integration is another area that may ultimately lead to optical wonders, but CIR says the immediate focus should be on achieving short term cost savings, rather than on long-term potential. Components and sub-systems manufacturers will find it easier -- and will be able to generate more short-term revenues -- with a message of reduced product size through the integration of wavelength lockers and semiconductor optical attenuators into lasers than with stories about monolithically integrated active and passive optical circuits. And, while almost all DWDM components and sub-systems vendors are beginning to utilize optical integration techniques, CIR holds out special praise for Nortel , Alcatel Optronics, Marconi Optical Components, Corning, Zenastra and JDS Uniphase because of their concentration on step-by-step integration of components so as to incrementally reduce cost. Similarly, CIR's report claims that there is more to be gained by delivering tighter channel spacing in the C-band, as is being done by Ciena (which makes its own fiber Bragg gratings to incorporate in its systems), Alcatel Optronics, Fujitsu, JDS Uniphase and Oplink rather than trying to push the envelope with S-band and L-band, which may be useful in the long run, but have yet to be standardized by the ITU-T.

"DWDM Sub-systems and Components: Markets and Trends" covers the markets for both DWDM components (light sources, detectors, filters/gratings, modulators, isolators, detectors and wavelength lockers) and DWDM sub-systems (transmitters, receivers, MUXs/DEMUXs, dispersion compensators.) This report also discusses amplifiers, but given the importance of the technology, CIR will be bringing out a special report on the amplifier market later in 2001. The report includes profiles and strategic assessments of approximately 30 manufacturers of DWDM sub-systems and components, along with case studies and analyses of the DWDM component/sub-system requirements of close to 20 leading equipment vendors. In addition, this new CIR report includes five-year forecasts of DWDM components and sub-systems broken down by product type and application. Finally, the report contains a detailed assessment of the short- and long-term evolution of DWDM technology.

CIR's report is available for $4,500 for hard copy and may also be purchased in electronic formats.

About CIR:

CIR is a leading industry analyst firm specializing in the areas of fiber optic networking systems, software and components. Through its reports, market advisory services and custom client engagements, CIR provides insightful research, analysis and consulting services for the optical market. CIR relies upon Service Provider activities and "demand side" research as the basis for its opinions and forecasts so as to provide realistic and credible analysis and insights for both its clients and the industry at large.

Exhibit: U.S. DWDM Sub-systems Market ($ Millions)

Transmitters

2001: 536

2005: 2,136

Receivers

2001: 161

2005: 641

Transponders

2001: 14

2005: 33

MUX/DEMUX

2001: 97

2005: 423

Dispersion Compensators

2001: 47

2005: 440

TOTAL

2001: 855

2005: 3,673

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