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The State of the Optical Communications Industry: On a Path to Sustainable Profitability
Description:
Valuations and profitability across the whole supply chain of the optical communication industry improved substantially in 2010. However, there is still a wide gap between companies like Google, which generate high profits taking advantage of the network at almost no charge, and those who compose the rest of the industry, which are struggling to stay profitable while upgrading networking infrastructure to keep up with rapidly increasing traffic or delivering more efficient and lower cost networking gear or components for it.
Average profitability of content providers such as Amazon, eBay, and Google doubled in 2010 compared to 2007 and it continues to increase in 2011. Profitability of optical component and equipment suppliers has also improved during the same period, but telecom service providers are yet to find a path to improve profitability, while increasing investments into networking infrastructure.
While clearly some of the increase in sales of optical components and modules in 2010 was a result of customers replenishing inventories after several slow quarters in late 2008 and early 2009, analysis of the market discussed in this report suggests that accelerated growth in the optical components and equipment market will be sustained for several years, despite a slow start in 2011. Continuing consolidation of the industry will gradually improve profitability across the whole supply chain.
This report outlines the major technological transitions impacting evolution of the networks and the whole industry. This includes rapidly increasing popularity of cloud computing and over the top (OTT) services and the emergence of super datacenters and flat networking architecture, which drive demand for higher data rate optics, including 10G, 40G and 100Gbps.
The report also examines dynamics of the optical component and module industry in several market segments including SONET/SDH, Ethernet, Fibre Channel, WDM, and FTTx. Leading vendors shared confidential sales data with LightCounting that enable an analysis of the industry's dynamics.
Average profitability of content providers such as Amazon, eBay, and Google doubled in 2010 compared to 2007 and it continues to increase in 2011. Profitability of optical component and equipment suppliers has also improved during the same period, but telecom service providers are yet to find a path to improve profitability, while increasing investments into networking infrastructure.
While clearly some of the increase in sales of optical components and modules in 2010 was a result of customers replenishing inventories after several slow quarters in late 2008 and early 2009, analysis of the market discussed in this report suggests that accelerated growth in the optical components and equipment market will be sustained for several years, despite a slow start in 2011. Continuing consolidation of the industry will gradually improve profitability across the whole supply chain.
This report outlines the major technological transitions impacting evolution of the networks and the whole industry. This includes rapidly increasing popularity of cloud computing and over the top (OTT) services and the emergence of super datacenters and flat networking architecture, which drive demand for higher data rate optics, including 10G, 40G and 100Gbps.
The report also examines dynamics of the optical component and module industry in several market segments including SONET/SDH, Ethernet, Fibre Channel, WDM, and FTTx. Leading vendors shared confidential sales data with LightCounting that enable an analysis of the industry's dynamics.
Contents:
Abstract
Executive Summary
Section 1: Major Trends in Telecom and Datacom Markets
- Service Providers Continue to Pursue Consolidation Strategies for Growth
- Service Providers are moving into Cloud Computing
- Over the Top (OTT) - Is it Competitive or Complimentary
- Datacenters are Scaling Up
- The New Datacenter Architecture is Flat
- Internet Companies Build Datacenters Differently than Telcos
- Service Providers Adopting Transparent Caching in Response to Service Demands
Section 2: Supply Chain Structure and Profitability
- Profitability imbalance across Supply Chain
- Scaling Network Capacity with Traffic
- Vendor Consolidation
Section 3: Changing Landscape of the Optical Transceiver Market
- Market Share Structure and Diversification of Vendors
- Consolidation shifts from Horizontal to Vertical
- SONET/SDH Market Segment
- Ethernet Market Segment
- Fibre Channel Market Segment
- WDM Market Segment
- FTTx Market Segment
Section 4: Rise of Chinese Equipment and Component Suppliers
- Huawei Becomes the Dominant Global Telecom Equipment Provider
- ZTE Continues to Gain Market Share
- Fiberhome, a full-line Equipment Supplier, is Growing as well
- Alcatel Lucent Shanghai Bell was the First Foreign Invested Company in China's Telecom Market
- Other Chinese Equipment Vendors
- The Emergence of Optical Component and Module Suppliers
- Challenges and Opportunities Ahead
Appendix A: Summary of Financial Data
- Table A1: Annual Net Income reported by top three content providers (millions of dollars)
- Table A2: Annual Net Income reported by top ten service providers (millions of dollars)
- Table A3: Annual Net Income reported by leading system vendors (millions of dollars)
- Table A4: Annual Net Income reported by Communication Semiconductor Vendors (millions of dollars)
- Table A5: Annual Non-GAAP Net Income reported by publicly traded optical component and module vendors (millions of dollars)
- Table A6: Quarterly Non-GAAP Net Income reported by publicly traded optical component and module vendors (millions of dollars)
- Table A7: Annual GAAP Gross Margin reported by top three content providers
- Table A8: Annual GAAP Gross Margin reported by top ten service providers
- Table A9: Annual GAAP Gross Margin reported by leading system vendors
- Table A10: Annual GAAP Gross Margin reported by Communications Semiconductor vendors
- Table A11: Annual GAAP Gross Margin reported by publicly traded optical component and module vendors
- Table A12: Quarterly GAAP Gross Margin reported by publicly traded optical component and module vendors
Appendix B: Profiles of Selected Chinese Vendors
- Table B1: Revenues of the Top Ten Chinese Optical Component and Module Vendors (millions of dollars)
- Accelink
- ATOP Technology
- Eoptolink Technology
- Gigalight
- HG Genuine
- Hi-Optel
- HiSense Broadband
- Hymax Optoelectronics Inc.
- InnoLight
- O-Net
- StarOpto
- Sunstar Communication Technology
- WTD
- Wuxi-ZTE
- Xiamen San-U Opto-Electronic Technology
Executive Summary
Section 1: Major Trends in Telecom and Datacom Markets
- Service Providers Continue to Pursue Consolidation Strategies for Growth
- Service Providers are moving into Cloud Computing
- Over the Top (OTT) - Is it Competitive or Complimentary
- Datacenters are Scaling Up
- The New Datacenter Architecture is Flat
- Internet Companies Build Datacenters Differently than Telcos
- Service Providers Adopting Transparent Caching in Response to Service Demands
Section 2: Supply Chain Structure and Profitability
- Profitability imbalance across Supply Chain
- Scaling Network Capacity with Traffic
- Vendor Consolidation
Section 3: Changing Landscape of the Optical Transceiver Market
- Market Share Structure and Diversification of Vendors
- Consolidation shifts from Horizontal to Vertical
- SONET/SDH Market Segment
- Ethernet Market Segment
- Fibre Channel Market Segment
- WDM Market Segment
- FTTx Market Segment
Section 4: Rise of Chinese Equipment and Component Suppliers
- Huawei Becomes the Dominant Global Telecom Equipment Provider
- ZTE Continues to Gain Market Share
- Fiberhome, a full-line Equipment Supplier, is Growing as well
- Alcatel Lucent Shanghai Bell was the First Foreign Invested Company in China's Telecom Market
- Other Chinese Equipment Vendors
- The Emergence of Optical Component and Module Suppliers
- Challenges and Opportunities Ahead
Appendix A: Summary of Financial Data
- Table A1: Annual Net Income reported by top three content providers (millions of dollars)
- Table A2: Annual Net Income reported by top ten service providers (millions of dollars)
- Table A3: Annual Net Income reported by leading system vendors (millions of dollars)
- Table A4: Annual Net Income reported by Communication Semiconductor Vendors (millions of dollars)
- Table A5: Annual Non-GAAP Net Income reported by publicly traded optical component and module vendors (millions of dollars)
- Table A6: Quarterly Non-GAAP Net Income reported by publicly traded optical component and module vendors (millions of dollars)
- Table A7: Annual GAAP Gross Margin reported by top three content providers
- Table A8: Annual GAAP Gross Margin reported by top ten service providers
- Table A9: Annual GAAP Gross Margin reported by leading system vendors
- Table A10: Annual GAAP Gross Margin reported by Communications Semiconductor vendors
- Table A11: Annual GAAP Gross Margin reported by publicly traded optical component and module vendors
- Table A12: Quarterly GAAP Gross Margin reported by publicly traded optical component and module vendors
Appendix B: Profiles of Selected Chinese Vendors
- Table B1: Revenues of the Top Ten Chinese Optical Component and Module Vendors (millions of dollars)
- Accelink
- ATOP Technology
- Eoptolink Technology
- Gigalight
- HG Genuine
- Hi-Optel
- HiSense Broadband
- Hymax Optoelectronics Inc.
- InnoLight
- O-Net
- StarOpto
- Sunstar Communication Technology
- WTD
- Wuxi-ZTE
- Xiamen San-U Opto-Electronic Technology
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