CignalAI: Cloud/Colo Spending Unexpectedly Drops in 1st Half 2017

by Andrew Schmitt, CignalAI

Cloud and colocation providers significantly cut back spending on optical transport equipment, according to Cignal AI’s Optical Customer Markets Report, which covers the first half of 2017. Issued on October 5th, the report foreshadowed the startling forecast warnings given this week by Juniper and Applied Optoelectronics.

We attribute the unexpected drop in year-over-year spending by Amazon, Facebook, Google and others to aggressive price declines in the equipment market, the deflationary effects of 100G and 200G technology and more an increasing focus by cloud/colo providers on building inside the data center rather than between locations.

“The current slowdown in cloud and colo provider spending has been a surprise to equipment and component manufacturers, particularly since all forecasts for this market anticipated continuing growth,” said Andrew Schmitt, Lead Analyst at Cignal AI, in a press release.

“The supply chain is already feeling an impact, but once the 200G price reductions are digested in the market, spending will resume rising.”

Optical Equipment Share (Cloud & Colo Markets)
Additional key findings in the Cignal AI 1H17 Optical Customer Markets Report include:

  • Ciena and Cisco are significantly outperforming their peers in sales to the cloud and colo market, even in the current challenging environment. Their gains reflect losses at ADVA, Infinera and Nokia.
  • In North America, incumbent operator spending is durable and has remained consistent year-over-year.
  • Chinese cloud and colo spending is still very low as a percentage of total sales. This is attributable to regulatory issues, which prevent companies like Baidu, Alibaba and Tencent from building their own networks.

Produced twice a year, Cignal AI’s Optical Customer Markets Report quantifies optical equipment spending by five key customer markets – incumbent, wholesale, cable MSO, cloud and colo, and enterprise and government. The current report covers spending through 1H17 and includes forecasts based on expected spending trends by customer market on a regional basis. The report also details equipment vendor market share for sales directly to the cloud and colo market.

Full report details, as well as other articles and presentations, are available to users who register for a free account on the Cignal AI website.

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Separately, a new Markets & Markets report titled: “Optical Communication and Networking Market Worth 24.12 Billion USD by 2023,” predicts robust growth rate for optical networking.   That market is expected to grow from USD 15.11 billion in 2017 to USD 24.12 billion by 2023, at a CAGR of 8.1% between 2017 and 2023. The growth of this market is driven by the growing data center deployments, and increasing internet penetration and data traffic.

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