Optical Networking Market Rebounds in Q2 and Shows Its Competitive Nature

In Q2 2013 the Worldwide Total Optical Networking market had a significant rebound, 34.0% quarter-over-quarter, yielding a year-over-year 10.2% increase with revenues of $3.66 billion. All segments reported positive quarterly growth, pointing to strong product demand to support end users. Only MSPP and SONET/SDH reported negative year-over-year growth. The Long Haul DWDM segment contributed the largest revenue, and the POTS segment posted the highest growth on a percentage basis.

Again this quarter vendors’ performance varied widely, causing another reshuffle of positions 2–9 of the top 10 players in the ON market. ZTE overtook Alcatel-Lucent, which usurped Ciena, bumping it from 2^nd place in 1Q to 4^th this quarter. Such quarterly swings in position are indicative of the cyclic nature of the optical business as one new network deal and deployment can quickly boost revenue.  

2Q, 2013 Worldwide Total Optical Networking Market
Company	Rank	Revenue ($M)
Huawei	1	$ 849.1
ZTE	2	$ 673.0
Alcatel-Lucent	3	$ 375.1
Ciena	4	$ 351.7
Cisco	5	$ 240.6
Fujitsu	6	$ 232.3
NSN (Coriant)	7	$ 138.0
Ericsson	8	$ 122.6
Infinera	9	$ 120.2
Tellabs	10	$ 112.7

Alcatel-Lucent and Ciena are within 6% of one another, both vying for 3rd place. A similar situation exists for Cisco (5^th position) and Fujitsu (6^th place); they only differ by 4% points. In positions 7–10 the difference between Coriant in 7^th and Tellabs in 10^th is $26.1 million on a quarterly basis; consequently, this spread presents opportunity for vendors to advance their overall rating and market percentage.

Trends

• The MSPP market segment has been consistently dropping and although grew 40.6% quarter-over-quarter was down 13.2% year-over-year. The overall transition away from some of the legacy technologies such as TDM and ATM is impacting this market segment. Enterprises are driving a shift of product type from MSPPs to Metro WDM platforms as they move to the IP/Ethernet environment.

• Supporting multiple 10G and 40G subscriber connections in wireline networks and mobile broadband backhaul 100G has become the de-facto optical standard for long haul transport.  Several optical vendors such as Alcatel-Lucent, Ciena and Infinera have already field trialed, demonstrated and in some cases delivered the ability to combine additional wave lengths to form super channels that will enable transport rates to 400G, half terabit and ultimately full terabit line rates. This is a good way for vendors to demonstrate their optical prowess as well as product future proofing.

• SDN is gaining traction and the battle lines are being drawn. Various vendor alliances are being formed to develop the entire ecosystem, such as Blue Orbit. PlugFests have been established to help in the validation and interoperability, and vendors, such as Ciena, have announced test bed networks to also validate implementations. All optical vendors will need to have their SDN story in place along with the product roadmap to be considered for new networking opportunities.

• The Metro WDM market was strong, particularly in North America, and will soon surpass sales of the MSPP market. This transition is driven from the migration away from legacy technologies, such as ATM and TDM, to an all IP/Ethernet environment. We expect this trend to continue as well as spread to other regions with long existing legacy infrastructures.  

The optical networking equipment market is being driven by applications in wireless data centers and its traditional role of long haul transport. The market is showing signs of solid growth this year and is poised to increase to the low double-digit range. The number of players in this space continues to actually increase, and ACG Research now tracks over 20 vendors in this space, though not all play in all market segments. This keeps competition fierce as vendors compete for Green field opportunities and any chance to unseat an incumbent supplier. We expect this trend to continue throughout 2013 and into next year.

For more information about ACG's optical services, contact sales@acgresearch.net.

         Jeff Ogle
jogle@acgresearch.net   
    www.acgresearch