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The State of the Optical Communications Industry: On a Path to Sustainable Profitability
Lightcounting, July 2011, Pages: 53+
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.
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