4Q 2013 Optical Networking Market Update

Once again the optical infrastructure market grew; 4Q quarter budget flush delivered 19.5% quarter-over-quarter gain and increased the Worldwide Total Optical Networking market revenue to $4.01 billion, the highest run rate level since 4Q 2008. 

The fourth quarter year-over-year growth for the optical infrastructure market was 16%, growing 9% for the year. Of the six product segments tracked within the optical market five of the six reported positive quarterly gains. The Long Haul DWDM segment returned to the number one position based on revenue with 45.6% quarter-over-quarter growth. The Metro WDM segment was the second highest segment, delivering 15.9% quarter-over-quarter growth.

Only the POTS segment experienced negative quarterly growth, -4.1% but was up in 42.1% year-over-year. It also remains the fastest growing segment on a yearly basis. All the other product segments of MSPP, Optical Cross Connect and SONET/SDH saw demand increase and reported positive quarter-over-quarter growth.

In 4Q not all vendors benefited equally from the increased spending with some significantly missing their revenue targets. The vendors’ performance varied widely with several reporting banner quarters with the highest revenue levels seen for years or new highs. For the top 10 positions for the total worldwide optical networking market this caused a reshuffle of positions 2–8 within the Optical Networking market for 4Q.

4Q, 2013 Worldwide Total Optical Networking Market
Company	Rank	4Q Revenue ($M)
Huawei	1	$ 1381.9
Alcatel-Lucent	2	$ 432.8
Ciena	3	$ 403.5
ZTE	4	$ 364.5
Ericsson	5	$ 225.9
Cisco	6	$ 210.0
Coriant	7	$ 152.0
Fujitsu	8	$ 146.0
NEC	9	$ 121.5
Infinera	10	$ 115.1

Huawei maintained its lock on the first position and reported its highest optical revenue quarter ever. The advancers included: Alcatel-Lucent, Ciena, Ericsson, and Coriant, which all advanced one position. The decliners included ZTE and Fujitsu; both lost multiple ranks within the market for 4Q. Cisco managed to maintain its position although its quarterly performance was also below target.

APAC, the largest region from an optical revenue standpoint, reported 25.6% quarter-over-quarter growth and positive 27.0% year-over year gain. This was largely driven by Huawei and the company’s wins with both China Mobile and China Telecom. The economy in EMEA is beginning to show signs of picking up and vendors reported 48% quarter-over-quarter growth and 11.9% year-over-year. LATAM was the largest increase on a percentage basis, delivering +58.9% quarter-over-quarter but only +3.3% year-over-year increases. On a regional basis North America was the worst performing region, -15.0% quarter-over-quarter but still managing a gain of 10.0% year-to-year. This was largely driven by AT&T, Verizon and Sprint, North American Tier 1 providers, curtailing their CapEx spending toward the end of 2013. 

4Q Trends

• The MSPP market segment continues to experience declining revenue and for 4Q was able to post a small positive gain of 3.9% quarter-over-quarter but dropped 15.4% year-over-year. On a yearly basis in 2013 the MSPP segment dropped 17% and is 52% down from its all-time high achieved in 2007. The general transition away from legacy technologies is driving the decline in this market segment. As enterprises move to the IP/Ethernet environment it is driving a shift of product type from MSPPs to POTS platforms.

• Though the POTS segment saw a decline in demand during 4Q and decreased 4.1% quarter-over-quarter it was still up 24.1% year-over-year. This segment grew 25.9% on a yearly basis, making it one of the fastest growing segments in the optical equipment market. These platforms are widely deployed in data center solutions and are generally all SDN ready. There are a large number of both incumbents and newcomers to this market segment, making the competition extremely fierce and partnering and technology decisions more complex.

• Marlin Equity Partners completed its acquisition and privatization of Tellabs and has set its strategic direction. A portion will fold into Coriant and the other will be spun out as a separate entity called Tellabs. With Coriant in seventh position and Tellabs in eleventh, the combined revenue will bring them on par with Fujitsu and Cisco. Marlin Equity Partners has become a major stakeholder in the optical market, and it must now focus on execution.

• Demand for 100 Gig interfaces remains strong and ACG estimates more than 10,000 100G ports were shipped in 4Q. The overall port count for 100G deployment was up by approximately 26% in 4Q and accounts for as much as 30% of some vendors’ revenue. We anticipate a flattening of growth but project that demand will remain strong during the first half of 2014.

• The Metro WDM market segment was strong, particularly in North America, and has surpassed sales of the MSPP market segment. The Metro WDM growth is driven by increased user traffic as well as a traffic pattern shifts where more of the traffic originates and terminates within the Metro itself. This trend, which predicts as much as 75% of the traffic, will stay within the Metro and will drive equipment sales.

The optical networking equipment market continues to be driven by its traditional application of wireline services (dry and wet), wireless back haul, data centers applications and emerging M2M applications. Demand for services that will rely and effectively run over optical infrastructure will remain strong. With the global economy showing strength and government outages behind us consumers should help drive demand. In the optical market, however, 1Q of every year tends to be down as vendors generally attempt to pull in all possible revenue to finish their year strong.

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

         Jeff Ogle
jogle@acgresearch.net   
    www.acgresearch