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The State of the Opto-electronic Transceiver Industry Report
Lightcounting, May 2010, Pages: 40
Ten years after the telecom bubble burst, the optical components and transceiver industry is once again on the rise. The current upswing offers a well deserved break for suppliers struggling through years of modest market growth, combined with fierce competition among suppliers and very demanding customers. The question is whether present successes will prove sustainable for more than just a few quarters. While clearly some of the increased activity is a result of several slow quarters in late 2008 and early 2009 as customers are replenishing inventories, a few factors suggest that accelerated market growth will be sustained for several years:
- The analysts data on optical transceiver shipments in 2004–2009 suggest that investments in network infrastructure were lagging traffic growth by 10-15% per year, so increased investment may be required now to catch up.
- Major upgrades to datacenters worldwide are clearly underway, fueled by online applications and services. New datacenters require much more optical connectivity than in the past because of increased data rates and changes in datacenter architecture.
- Increasing usage of wireless bandwidth triggered substantial upgrades to wireless back haul, driving demand for high-data-rate optical transceivers.
- Sales of tunable transceiver modules and ROADM are benefiting from higher expectations to timelines of network deployment and restoration, as these components reduce the time required to set up or reconfigure networking systems.
Despite the rising market demand, the fundamental business challenge for the optical transceiver and component industry remains the same as it has been for several years: how can a profitable business be run while investing in research and development of very complex, technology-heavy optical components to stay ahead of competition?
As transceiver sales picked up in the end of 2009, vendor profitability crossed into positive territory even on a GAAP basis, and margins increased to 25–30% in late 2009 and early 2010. It remains to be seen whether transceiver vendors can achieve sustainable profitability as they are squeezed by intense price pressure from their customers from the top and fierce competition from Asian-based transceiver manufacturers from the bottom.
This report outlines the state of the optical component and transceiver industry, examining the industry dynamics in several market segments including SONET/SDH, Ethernet, Fibre Channel, WDM, FTTx, and optical interconnects. Leading vendors shared confidential sales data with the publisher that enables an analysis of the industry’s health. The report also discusses the profitability and diversification of transceiver vendors as well as their customers and suppliers.
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