LightCounting’s 3Q 2017 Optical Market Update + China’s Optical Network Comeback?

I.  Light Counting’s 3Q2017 Market Update:

In its newly released “December 2017 Quarterly Market Update” LightCounting LLC states that demand for optical communications technology in 3Q 2017 followed what has been a year-long trend:  Telecom/network service provider spending declined year-on-year while data center operators increased their investments in fiber optic infrastructure.

The decline in telecom optical network spending hit the optical components segment hardest, but was negative for vendors selling to telcos which can be seen from the chart below:

LightCounting third quarter 2017 capex year over year

In 3Q 2017, data center use of optical communications technology was considerably more than that of telecom/network service providers.

Source:  LightCounting LLC

…………………………………………………………………………………………………………..

Chinese carriers (see companion piece below) followed through on their announced plans to trim spending. LightCounting reports that China Telecom will continue to cut capex in 2018. Elsewhere in the world, only Orange looks like it will spend more this year than last among LightCounting’s list of top 15 telecom service providers.

Upticks in 100G DWDM transponders and WSS module sales paled in comparison to the declines experienced in the FTTx and wireless front haul markets, both sequentially and annually (see “Demand for FTTx, wireless optics declines from 2016: LightCounting”).

LightCounting says that check-ins with semiconductor vendors such as Analog Devices, Qualcomm, and Xilinx revealed increased activity in wireless/cellular communications, including 4.5G and 5G projects. This information leads the market research firm to expect initial commercial deployments of next generation wireless technologies in 2018, which in turn should boost the demand for optical front haul technology.

Optical vendors with exposure to the data center and internet content provider markets fared better than long haul/DWDM vendors.  For example, Alibaba, Facebook, and Google increased their infrastructure spends by 142%, 62% and 39%, respectively, leading to overall spending records in the space during the quarter. Facebook plans to double capex in 2018, leading to hopes that data center optical spending growth is sustainable.

Optical transceiver vendors benefited during the quarter, which Applied Optoelectronics seeing a 27% increase in revenues and Innolight a 94% boom versus 3Q16. Shipments of PSM4 and CWDM4 100GbE modules set records during the quarter. However, 100GBASE-LR4 QSFP28 optical transceiver demand in the third quarter of 2017 proved softer than LightCounting expected.

…………………………………………………………………………………………………………….

LightCounting LLC says:

Our analysis is based on confidential sales data provided by leading suppliers and offers a unique port-based view of the industry.

References:

http://www.lightwaveonline.com/articles/2017/12/third-quarter-2017-follows-year-long-theme-for-optical-communications-lightcounting.html

https://www.lightcounting.com/News_121317.cfm

http://techblog.comsoc.org/2017/11/27/cignal-ai-deloro-optical-network-equipment-market-decline-continues/

https://www.futuremarketinsights.com/reports/optical-networking-market

…………………………………………………………………………………..

II. China’s Optical Market Comeback (via Barron’s on-line), by Tiernan Ray

China’s optical fiber market is coming back, but slowly, according to a note this morning from Rosenblatt Securities analyst Jun Zhang, who follows shares of laser vendor OclaroAcacia Communications,  Applied Optoelectronics, and other vendors.

Demand in China is stabilizing and slightly improving,” writes Zhang, “but we do not see a broad acceleration in China’s recovery yet.

“Chinese vendors recently concluded 2018 component and module procure- ments. Therefore, optical module and component suppliers should have base- line procurement contracts from Chinese vendors for 2018.”

The tricky part, indicates Zhang, is that Chinese buyers of components  are increasingly coming up with their own internal components, which is going to dent some of the demand:

Instead of over promising volume to suppliers, we believe Chinese vendors offered baseline procurement volume estimates for 2018. Additionally, we believe these current procurement forecasts do not include any upside from initial 5G deployments in 2H18. However, line and client side module procurements from Chinese vendors are all down YoY due to internal sourcing. Therefore, due to conservative forecasts and increasing competition in the module market, most optical suppliers will likely continue to speak conservatively on China demand. 

Zhang goes through what to expect, and it’s quite a mixed bag for various different vendors:

As we expected, ZTE is attempting to increase its internal sourcing for line side CFP2 DCO modules in 2018. Therefore, Acacia’s business could be negatively impacted in 2018 by ZTE. On the other hand, we believe there’s a chance Acacia can qualify at Huawei for DSP in 2018, but we see no signs yet. Intel’s  CWDM4 has been qualified at Facebook and could have a sizeable market share, similar to the share size we expect InnoLight to also have at Facebook in 2018. However, Applied Optoelectronics shares are down significantly at Facebook in 2018 likely putting its CQ4 guidance at risk […]

NeoPhotonics  could be up YoY, Lumentum flat YoY, Oclaro down slightly YoY, and Acacia down YoY. We also estimate Huawei and ZTE’s 100G ports to grow to 150K and 35K from 130K and 45K, respectively, in 2018. FiberHome  recently saw a large share gain at China Unicom and we expect it to double its 100G port shipments in 2018 from a small basis.

Recent Posts