ACG Research has reduced the Optical Networking forecast for 2012-2017 from a 3.6% five-year CAGR to 2.6%.
- Economy: The economy continues to affect the market as regions such as the euro zone have not improved, and North America has not built any significant momentum toward a clear or immediate surge in spending. There seems to be few outlets for positive data points.
- Capital Expenditures: We are not seeing the CapEx flush that some expected in the second half of 2012. While AT&T has reported increased spending for broadband over the next three years, we believe only a portion of this will trickle down to optical expansion requirements.
- Guidance: Several vendors are guiding flat or are lowering expectations for Q4 (Alcatel-Lucent is an exception). Those heavy in the enterprise have reported corporate trepidation and are slowing their spending because of indecision.
- Company Size: We are seeing smaller companies doing better than some larger ones primarily because they are well diversified in their customer bases. Most medium or smaller companies are selling to content providers as well as the enterprise, which helps buffer the lower spending by Tier 1s. Those that are largely Tier 1 focused are feeling the most pain.
- Pricing Pressure: 100 G pricing and general ASPs have fallen more than 50% in the last 5 quarters for some vendors.
- Product Management Choices: Vendors that have multiple products are not making the difficult product management decisions to move forward and support key programs. Research and development is being spread across multiple platforms, resulting in delayed product and lack of innovation.
- Consolidation: We expect these factors will finally result in consolidation in the optical market.
ACG continues to be cautious in our overall estimates for the next five years. The transition from separate IP and optical platforms to converged packet optical-based platforms remains slow as operators weigh the advantages and disadvantages of integrated solutions and the effect of SDN on the overall marketplace.
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