A sluggish market projected for fiber-optic test instruments

Oct 1st, 1995

A sluggish market projected for fiber-optic test instruments

The fiber-optic test instrument market is predicted to rise slowly from $145 million in 1995, at a 4% average annual growth rate, to $175 million in the year 2000--which pales against the 10% to 15% growth rate of the 1980s and early 1990s

Charles Xu

Kessler marketing intelligence corp.

In the fiber-optic test instrument market, the key trend over the past few years has dealt with the separation of the optical time domain reflectometer (OTDR) sector into full-function OTDRs and mini-OTDRs. The lower-cost mini-OTDRs have replaced full-featured OTDRs and are mostly used for outside plant installation and restoration.

Another major trend reflects the use of low-cost, handheld instruments. As a result, the market share of rack-mount or benchtop instruments continues to drop as a percentage of the total fiber-optic test instrument market. This market includes the sales of OTDRs, power meters, light sources, optical loss test sets, fiber identifiers, attenuators, talk sets and high-cost, high-precision testers.

In 1994, the U.S. market for fiber-optic test instruments was $139 million. This sales value equals the 1993 market total but is slightly less than the 1992 market of $141 million.

The instrument market is predicted to reach $145 million in 1995 and should continue to rise slowly at an average annual growth rate of 4%, to $175 million in the year 2000. This low single-digit growth rate differs markedly from the strong 10% to 15% growth rate incurred through the 1980s and early 1990s.

The telephone industry market for fiber-optic test instruments declined from 1993 to 1994 because of user switchover from full-featured OTDRs to mini-OTDRs. This market is forecast to rebound slightly in the later 1990s with the expanded deployment of fiber-to-the-curb and hybrid fiber/coaxial-cable networks.

The cable-TV industry market for fiber-optic test equipment represents the best near-term sales opportunity. Major cable-TV multiple system operators plan to use their networks to deliver voice and multimedia services. Consequently, they are focusing on network architectures that would minimize the use of coaxial cable and maximize the use of fiber-optic cable. With further penetration of fiber cable expected into cable-TV networks, more test equipment will be needed for new system installation, performance and maintenance.

Strong competition among fiber-optic test instrument suppliers is predicted because the number of suppliers and the quantity and variety of test products are at an all-time high. Vendors must constantly improve their products and adjust product portfolios to keep up with changing customer network and testing requirements.

During the last few years, test instruments have been improved and new instruments have emerged, including second-generation mini-OTDRs, mini-full-featured OTDRs and modular instruments that have integrated the capabilities of standalone test equipment. The fiber/coaxial-cable reflectometer might emerge as the next new product after the telephone companies further disclose their initiatives on installing fiber-optic broadband networks.

More than 40 companies supply fiber-optic test instruments to U.S. markets. The top three companies with the highest sales of fiber-optic test instruments accounted for 50% of the 1994 market. The top nine companies garnered nearly 86%. Therefore, many companies with sales of less than $3 million are competing in the remaining 14% of the market.

Several companies that focus exclusively on fiber-optic test instruments racked up a 26% share of the 1994 market. Several Asian and European companies--with no manufacturing facilities in the United States but selling fiber-optic test instruments in the U.S. market--had a 38% share.

In 1994, the U.S. market consisted of 93% of the North American market for fiber-optic test equipment. In turn, the North American market was 30% of the $500 million worldwide fiber-optic test equipment market.

The North American market is anticipated to grow more slowly than that of other world regions through the year 2000. Its market share is figured to drop to 23% of the $830 million worldwide market at that time. The markets that are gauged to expand rapidly are those in Eastern Europe and South America, both with growth rates of 15% to 20%. Some companies with sizable sales in the United States are, therefore, expanding into the worldwide test instrument market.

Market size and trends

At the end of 1994, the U.S. market comprised a cumulative total of 196,000 fiber-optic test instruments, up from 64,000 units in 1990. The cumulative number of reflectometers increased 329%, from 2800 in 1990 to 12,000 in 1994. Also experiencing explosive growth, the cumulative number of power meters increased by 207%, from 30,000 units in 1990 to 92,000 units in 1994.

The huge increase in these two fiber-optic test instrument types coincided with the equally increasing deployment of fiber-optic cables and components in telecommunications and data communications networks from the 1980s to the early 1990s. It is estimated that there will be an installed base of 482,000 fiber-optic test instruments in the United States by the year 2000, an impressive growth of 146% over the cumulative volume in 1994. The number of reflectometers is expected to climb to 39,000 by the year 2000, or 225% more than the cumulative volume in 1994. The number of power meters should approach 230,000 in 2000, or 148% more than the cumulative volume in 1994.

A major reason for the decrease in fiber-optic test instrument prices involves the switchover from benchtop instruments to low-cost handheld or miniature test devices. For example, the use of mini-OTDRs instead of full-featured devices has mushroomed.

Other major reasons for decreasing prices result from increased supplier competition, customer demands for lower-cost test products to reduce the expense of system installation and maintenance, and manufacturing improvements in components such as lasers and light-emitting devices.

The difference in growth rates for units and sales of handheld power meters typifies the test instrument market. The market for power meters, for example, is estimated to climb at an average annual rate of 7%, from 1994 through 2000. But power meter sales should be flat or may experience a slight drop during the next few years. This plateau is expected because the average selling price of handheld power meters should decline at an average annual rate of 7% for the next few years--the fastest rate of decline of all fiber-optic test instruments.

Market growth factors

The driving forces that should boost the fiber-optic test instrument market at an average annual growth of 4% in sales and 7% in unit shipments include:

Changing network architectures

Increased fiber-optic cable deployment in cable-TV networks

Standard data management software for fiber plant documentation and data analysis

Increased component testing in the manufacturing process

New test and measurement technologies to accommodate plastic optical fibers.

The factors that might retard test instrument sales include:

Some instrument technologies are not mature; therefore, price erosion is inevitable.

Switchover from high-end to low-end portable test equipment

Expanded purchasing cycle because of improved life-span of test equipment

Reduced maintenance requirements because of improved fiber, connector and splicing technologies

Reduction in number of test employees

per access line because of auto mated and centralized maintenance procedures

Unknown pace of network deployment.

Worldwide markets

Other worldwide markets undergoing sizable test instrument sales are in Pacific Rim and Western European countries. Eastern Europe, Southeast Asia, the Middle East, Africa and South America have achieved a smaller share of the overall market because these countries contain fewer installed fiber-optic networks.

The worldwide fiber-optic test instrument market is forecast to grow at an average annual rate of 9%, to $830 million in the year 2000. North American and Western Europe markets have had stronger sales in previous years. This means that the installed base of test instruments is large enough so that yearly sales of new instruments should grow slowly.

The countries in Eastern Europe and other emerging markets, on the other hand, have a smaller installed base of test instruments, resulting in faster growth rates in these markets. Some countries in the emerging markets--India, South Africa, Brazil and Argentina, for example--are primed for rapid growth in fiber-optic test instrument sales. The Pacific Rim is predicted to constitute the largest test instrument market by the year 2000. Most of the test equipment should be deployed in Japan, Australia, China, Hong Kong, Korea, Singapore and Taiwan.

The worldwide market is characterized by a small number of companies having a large portion of the market. In 1994, the top three companies--Anritsu Wiltron Sales Co., Hewlett-Packard Co. and Ando Corp.--had 50% of the $500 million worldwide market. Anritsu and Ando have minor shares in the North American market, but are strong contenders in Europe, Asia and the emerging markets. On the other hand, the leaders of the North American market--Laser Precision Corp. and Tektronix Inc.--have smaller shares of the worldwide market.

Of the $139 million worth of fiber-optic test instruments sold in the United States in 1994, 38%, or $53 million, were imported. On the other hand, many leading U.S. test instrument manufacturers have racked up substantial export sales to Europe, Asia/Pacific and other worldwide regions. Of the $143 million worth of test instruments manufactured in the United States, 40%, or $58 million, were exported. Nearly half of this amount involves high-precision laboratory, manufacturing and benchtop test equipment. The other half deals with portable instruments such as reflectometers and power meters. The balance of trade, however, is positive: More test instruments are exported from the United States than are imported from Europe and Asia.

The major U.S. companies with significant exports of fiber-optic test instruments include Hewlett-Packard, Tektronix, Laser Precision, Photon Kinetics Inc. and 3M Telecom Systems Division. As the U.S. market for fiber-optic test instruments becomes saturated, more vendors will pursue overseas markets, resulting in strong export sales in the next few years. u

Charles Xu is an analyst at Kessler Marketing Intelligence Corp., Newport, RI.

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