Cignal AI: Record Spending on Cloud Operator Optical Networks Drives Growth in 2018

by Andrew Schmitt and Scott Wilkinson of Cignal AI

Cloud operator spending on optical hardware grew almost 50 percent year-over-year to reach well over over $1 billion in 2018, according to the most recent (4Q18) Optical Customer Markets Report from research firm Cignal AI.

“Cloud network operators such as Google and Microsoft were the only customers in the optical market to exhibit significant spending growth last year” said Scott Wilkinson, Optical Hardware Lead Analyst for Cignal AI. “While still the largest segment overall, incumbent spending on optical hardware was down last year, particularly in North America.”

Optical Ahrdware SPending Trends by Customer Market 4Q18 North America
The Cignal AI Optical Customer Markets Report is issued quarterly and quantifies optical equipment sales to five key customer markets: incumbent, cloud and colo, wholesale, cable MSO, and enterprise and government. Findings from the current report – including market size, forecasts by regions and optical hardware vendor market share – will be examined via a webinar on Tuesday, April 23 at 11 a.m. EDT, which is open to all report clients.

Key findings in 4Q18 Optical Customer Markets Report:

  • Cloud operators remain the fastest-growing segment – North American cloud operators spent nearly as much on optical hardware as incumbents such as AT&T and Verizon in Q4.  New builds drove growth in EMEA, making cloud and colo the fastest-growing worldwide customer segment in 2018.
  • Ciena extends market lead among cloud operators –Ciena supplied over a third of the global market and doubled its lead over its nearest competitor. Others in the top five include Cisco, Huawei, Nokia and Infinera.
  • Incumbent spending growth will remain in low single digits through 2023 – While incumbents still purchase most optical hardware, their spending is static when compared with new network operators. Updated forecasts indicate a decline ahead in North American incumbent spending.
  • Cable/MSO and Wholesale Operators Decelerate Spending – Spending growth by cable/MSO operators was weak and market consolidation resulted in slowing wholesale optical network deployments.

The 4Q18 Optical Customer Market Report includes current quarter and full year 2018 optical sales for all tracked vertical markets. The report also includes optical equipment vendor market share for sales to cloud and colo operators, as well as updated customer market forecasts through 2023.

About the Optical Customer Markets Report

The Cignal AI Optical Customer Markets Report tracks optical equipment spending by end customer market type. It provides forecasts based on expected spending trends by regional basis. The report includes revenue-based market size for all end customer markets across all regions, with market share for sales to the cloud and colo segment broken out on a worldwide basis.

Vendors examined include Adtran, ADVA, Ciena, Cisco, Cyan, ECI, Ekinops, Fiberhome, Fujitsu Networks, Huawei, Infinera, Juniper Networks, Mitsubishi Electric, MRV, NEC, Nokia, Padtec, TE Conn, Tejas Networks, Transmode, Xtera and ZTE.

Quarterly report deliverables include an Excel file with complete data set, PowerPoint summary of highlights and Cignal AI Active Insight market event news briefs. Full report details, as well as free articles and presentations, are available on the Cignal AI website.

About Cignal AI

Cignal AI provides active and insightful market research for the networking component and equipment market and the market’s end customers. Our work blends expertise from a variety of disciplines to create a uniquely informed perspective on the evolution of networking communications.

Contact Cignal AI/Purchase Report

Sales: sales@cignal.ai
Web: Contact us
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Cignal AI: Long-Haul WDM Deployment Growth Sets Stage for Increased Spending in 2019

After a weak 2017, long-haul WDM deployments rebounded in the fourth quarter of 2018 (4Q18) with growth of nearly 20 percent; bringing it up almost 8 percent for the year, according to the 4Q18 Optical Hardware Report from research firm Cignal AI. Growth was fueled by a reversal of almost two years of terrestrial spending decline in North America and a year-over-year surge in Japan.

“There have been several announcements of next-generation coherent optical system deployments leading up to this week’s OFC conference, and more are expected before the event concludes,” said Scott Wilkinson, Optical Hardware Lead Analyst at Cignal AI. “These new generations of coherent optical hardware will spur long-haul and SLTE spending increases, which we expect will continue into next year.”

Cignal AI’s Optical Hardware Report is issued each quarter and examines optical equipment revenue across all regions and equipment types. The analysis is based on financial results, shipment information, and guidance from individual equipment companies. Forecasts are based on overall spending trends for equipment types within the regions.

Key findings in 4Q18 Optical Hardware Report:

  • North America Rebounds – After eight quarters of declining revenue, North American terrestrial spending (excluding SLTE) turned positive in 4Q18, led by long haul and cloud & colo spending. Ciena saw double-digit growth in the region and was responsible for most of the turnaround, with ADVA posting a similar growth percentage. While 2018 was down year over year, modest growth is predicted for 2019.
  • Japan Posts Impressive Returns – A stronger-than-expected third quarter combined with a 4Q18 surge resulted in regional growth of nearly 45 percent year-over-year, led entirely by non-Japanese vendors. Nokia, Ciena and Huawei posted larger gains at the expense of traditional Japanese vendors Fujitsu, Mitsubishi and NEC. While spending was up double-digits in 2018, it is expected to normalize to single-digit growth for 2019.
  • EMEA Quarterly Spending Lags – Traditional EMEA fourth-quarter spending growth was not as large in 2018 as compared to previous years, resulting in a quarterly YoY decline. For the year, EMEA is up slightly and should grow well into 2019.
  • China Experiences Slowdown – Growth in China continued in 4Q18 but decelerated as more moderate growth becomes the new norm as large percentage gains cannot be sustained indefinitely. Nokia had a strong quarter, though Chinese sales are still dominated by the local vendors such as Huawei and ZTE. The loss of ZTE revenue in the 2Q18, however, resulted in flat Chinese spending for the year. Single-digit growth is expected into 2019.
  • CALA Returns to Growth – Recovering from a negative third quarter, CALA had a small increase in 4Q18. The region remained down in double-digits for the year.

 Interactive Optical Hardware Market Share Tracker

 In mid-2018, Cignal AI launched its Optical Hardware Market Share Tracker, which presents the quarter’s up-to-date market data, providing real-time visibility on individual vendors’ results as soon as they are reported to enable well-informed market analysis. With the 4Q18 results, Cignal AI debuted a new, interactive format that enables users to manipulate data online and see information in a variety of useful ways. The interactive Market Share Tracker is available to clients of the Optical Hardware Report.

About the Optical Hardware Report

The Cignal AI Optical Hardware Report is published quarterly and includes market share and forecasts for optical transport hardware used in optical networks worldwide. In addition to the interactive tracker, analysis includes an Excel database as well as PDF and PowerPoint summaries. Subscribers to the Optical Hardware Report also have access to Active Insight, Cignal AI’s real-time news service on current market events.

The report examines revenue for metro WDM, long-haul WDM and submarine (SLTE) equipment in six global regions and includes detailed port shipments by speed. Vendors in the report include Adtran, ADVA, Ciena, Cisco, Coriant, ECI, Ekinops, Fiberhome, Fujitsu, Huawei, Infinera, Juniper Networks, Mitsubishi Electric, MRV, NEC, Nokia, Padtec, Tejas, Xtera and ZTE.

Full report details, as well as articles and presentations, are available on the Cignal AI website.

About Cignal AI

Cignal AI provides active and insightful market research for the networking component and equipment market and the market’s end customers. Our work blends expertise from a variety of disciplines to create a uniquely informed perspective on the evolution of networking communications.

sales@cignal.ai
Web: Contact us

Cignal AI Raises Forecast for Asia Optical Hardware Market while NA declined for 8th consecutive quarter

Optical hardware sales throughout Asia surged in 3Q18, fueled by double digit increases in China and Japan, and a turnaround in India, according to the third quarter 2018 (3Q18) Optical Hardware Report from research firm Cignal AI. With strong momentum expected to continue, we raised our estimates for Asia.

North America continued to decline for the eighth consecutive quarter, as weakness in the traditional operator market was not offset by strong sales to cloud and color operators.

“China bounced back more quickly than expected following the ZTE shutdown, and outside vendors Nokia and Ciena saw a triple-digit increase in Japan during the third quarter,” said Scott Wilkinson, lead analyst, Optical Hardware for Cignal AI. “RoAPAC contributed to the success in Asia as well. While we expected a slight slowdown this year there will likely be net increases for the year, driven largely by sales in India.”

Other findings in the 3Q18 Optical Hardware Report;

  • Ciena was the only vendor among the top 5 that grew revenue in North America, thanks to sales to cloud and colo operators.
  • EMEA saw double-digit growth during the quarter, and this momentum is anticipated to continue given traditional fourth-quarter spending increases.
  • An expected turnaround in CALA did not materialize, as spending in the region continued to decline.

Optical Vendor Summary Reports

A new feature of the Optical Hardware Report this quarter are Optical Vendor Summary Reports which examine in depth the most recent quarterly results and items of interest about vendors in the optical market. Reports this quarter cover ADVACienaFujitsuHuaweiInfinera/Coriant and Nokia.

About the Optical Hardware Report

The Cignal AI Optical Hardware Report is published quarterly and includes market share and forecasts for optical transport hardware used in optical networks worldwide. The analysis includes an Excel database as well as PDF and PowerPoint summaries. Subscribers to the Optical Hardware Report also have access to Cignal AI’s real-time news briefs on current market events, Active Insight.

The report examines revenue for metro WDM, long-haul WDM and submarine (SLTE) equipment in six global regions and includes detailed port shipments by speed. Vendors in the report include Adtran, ADVA, Ciena, Cisco, Coriant, ECI, Ekinops, Fiberhome, Fujitsu, Huawei, Infinera, Juniper Networks, Mitsubishi Electric, MRV, NEC, Nokia, Padtec, Tejas, Xtera and ZTE.

Full report details, as well as articles and presentations, are available on the Cignal AI website.

 

Cignal AI’s Optical Customer Markets Report: Optical spending up in China & NA; Down for cloud service providers & other regions

Cignal AI’s (Andrew Schmitt) latest  Optical Customer Markets Report states that spending growth by cable Multiple System Operators (MSOs) led all other North American industry verticals during first quarter 2018. The report also reveals that contrary to continued increase in China’s optical spending, incumbent network operator spending in North America and Europe, Middle East and Africa (EMEA) on optical transport equipment continues to decline.  Spending in North America grew 30 percent and outpaced all other customer verticals, including cloud operators.

Indeed, optical equipment spending by cloud operators has stalled due to rapidly declining prices and the use of IP-over-WDM as a substitute. Despite the downward trend, however, Ciena and Infinera continue to increase market share in the cloud optical network market.

“In North America, cable MSOs were the strongest performing customer market during the first quarter of 2018,” says Andrew Schmitt, lead analyst at Cignal AI. “Cloud operators are not increasing purchases of optical equipment, though common belief right now is just the opposite. The revenue growth from cloud operators experienced by Ciena and Infinera came at the expense of other vendors’ sales.”

Other key findings in the report include China being the largest source of optical hardware market growth, almost single-handedly representing the one-third global spending by Asia. Global spending by cable MSOs grew 5% year-over-year in the first quarter, with North America increasing 30%.

Other findings of the report were outlined in the press release and included:

  • Ciena and Infinera sales growth in the cloud and colo market came during a period of overall spending decline among these customers (see above chart).
  • Optical equipment spending by cloud operators has stalled, which contradicts the common perception that cloud operators like Amazon, Google and Microsoft are increasing spending on optical transport equipment. Growth in the cloud market has been inhibited by rapidly declining prices and the use of IP over WDM as a substitute.
  • One third of global spending on optical hardware is in Asia, with almost all coming from Chinese incumbent operators.
  • Cable MSO global spending grew 5 percent year-over-year in the first quarter.

Cignal AI’s Optical Customer Markets Report is issued quarterly and quantifies optical equipment sales to five key customer markets as well as equipment vendor market share for sales to cloud operators.

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From a separate Cignal AI market research report, here’s the latest YoY Revenue % increase/decrease for various segments of the optical networking market by country or region and Grand Total:

 

Chart courtesy of Cignal AI

Cignal AI: Strong 4Q-2017 Optical Equipment Growth in Asia, EMEA led by Metro WDM Gear

Cignal AI’s quarterly optical hardware report was published last week and includes results for almost all vendors in 4Q2017. Global spending on optical network equipment surged due to larger than usual seasonal growth in China and EMEA combined with continued elevated spending in rest of APAC (RoAPAC) = APAC x Japan and China.  However, North America and CALA regions each suffered a double digit decline.  Here are Cignal AI’s YoY % change from 4Q2016 to 4Q2017:

Key takeaways for the 4th quarter of 2017:

  • China – When compared to 4Q2016’s weak spending, 4Q2017’s Chinese spending was massive, with year-over-year revenue increasing 40 percent (see chart above) and reaching record quarterly levels. We expect further discussion with Chinese vendors to provide greater insight on what drove this surge.
  • EMEA – Carriers maxed out capex at the end of the year and spent 21 percent more YoY. Beneficiaries of this spending were Huawei and Nokia, while Infinera also reported significant EMEA revenue from a large North American cloud/colo vendor. Vendors believe that 2018 will be better and they expect incumbent operators to spend more.
  • Japan – Spending was up 13 percent YoY for the quarter. NEC and Fujitsu accounted for 80 percent of all optical equipment sold in the region in 2014, but by 2017 it has dropped to 65 percent, as vendors such as Huawei, Ciena, and Infinera made inroads in this market. Western vendors are encouraged, and now consider Japan an area of potential expansion.
  • RoAPAC – Nokia and Ciena had record revenue in RoAPAC during 4Q2017. Ciena’s revenue exceeded $100 million in the region, while Nokia’s nearly matched that of Huawei. Spending in India remained high, though Cignal AI is monitoring for the impact of the upcoming merger between Jio and Reliance.
  • North America – 4Q17 spending continued to slip on a YoY basis for the fifth consecutive quarter with all customer market segments spending at lower levels. Spending by cloud and colo operators has not returned to earlier levels. Multiple vendors also cited continued weakness at Level3/CenturyLink and AT&T, particularly on long-haul WDM equipment. We think AT&T’s spending will be depressed until the end of 2018 as the company prepares its new disaggregated hardware deployment strategy. Component vendors note that shipments used in metro WDM networks such as Verizon’s are trending up for next year.

Image result for optical network hardware market

“One of the biggest surprises in 2017 was massive spending growth in China. Despite slumping purchases from component manufacturers, Chinese optical vendors Huawei and ZTE reported record levels of revenue. A strong component sales rebound should be expected if this divergence was a result of excess inventory,” said Andrew Schmitt, lead analyst for Cignal AI.

Huawei, Nokia, Ciena, Cisco, and Infinera did very well in the EMEA region, according to the Cignal AI report. Huawei, ZTE, Nokia and Ciena all enjoyed a strong quarter overall, thanks in large part to the popularity of their Metro WDM systems and submarine line (undersea cable) terminal equipment (SLTE).

Additional highlights of results for the full year can be found in Cignal AI’s press release.

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Separately, Research and Markets has published  “Optical Networking Opportunities in 5G Wireless Networks: 2017-2026” report.  According to a press release:

 

5G will create considerable new opportunities for the optical networking industry going forward in the 5G infrastructure; both backhaul and fronthaul. However, while optical links have been widely used in the mobile telephony industry for many years, revenue generation from optical networking in the 5G space will require carefully thought through strategies by the optical networking industry as a whole.

5G is poised to dramatically increase the use of fiber optics in some parts of the network, while actually reducing the use of fiber in others:

  • There is a vision of 5G as a converged fiber-wireless network in which short-haul, but very high bandwidth wireless connections will support high data rates, but with fiber almost everywhere else. 5G as it is currently evolving seems more willing than previous generation to make fiber optic deployments a central part of the network and any general standards that emerge. This makes 5G potentially a huge opportunity for the fiber optics industry – including the makers of modules and components as well as the fiber/cable manufacturers themselves.
  • The main beneficiary of the shift towards fiber in the 5G infrastructure will ultimately be NG-PON2. But for now this is really only being championed by one company; Verizon. XGS-PON will provide an interim solution, but the question is for how long?
  • On the other hand, 5G, with its high data rates, seems to imply fiber could present a significant challenge to long-held assumptions about the need for fiber-to-the-premises. This suggests that some of the fiber optic opportunities that have been baked into the product/market strategies of many optical networking firms may turn out to be wrong. A faceoff between 5G and NG-PON as service platforms seem likely in the long run.

5G deployment is currently at an early stage. There is no formal standard yet for 5G and there are many different visions of what 5G will ultimately look like. In particular, fiber opportunities will be impacted by the implementation of new approaches using C-RAN architectures and next-generations interfaces that move beyond CPRI. Fiber opportunities in the 5G infrastructure will also depend on the shifting boundaries between fronthaul and backhaul. The votes are still out on what type of 5G network will ultimately evolve and this will impact the size and growth of the 5G network’s need for fiber optics market accordingly.

In this highly uncertain environment, this report is designed to provide guidance to the optical networking industry and where and how 5G backhaul and fronthaul will present new opportunities over the coming decade.

Included in this report are:

  • An assessment of how current visions of 5G networks vary in terms of their impact on optical network products and fiber optics demand. How will optical links help to support the necessary bandwidth and latency for 5G networks? And what will the concept of an integrated wireless/fiber network mean in practice?

  • An analysis of the type of optical networking products that 5G will require. In this analysis we cover modules (by MSA, data rate, etc.), components and the types of fiber that would be used in an integrated wireless/fiber network. The report is particularly focused on the role of PONs – especially XGS-PON and NG-PON2 – in providing 5G infrastructure. It also examines how interfaces between fiber and base stations/hubs will evolve in the 5G network

  • A granular market ten-year market forecast of fiber optics-related opportunities flowing from 5G deployment. The forecast is provided in both unit shipment and market value terms. It is also broken out by type of transceiver product, cable type, data rate, network segment, country/region, etc.

  • Discussions and assessments of how leading firms in the module and component space are preparing for 5G deployment and what this says about who the fiber optics-related winners and losers will be

  • A discussion of how the deployment of 5G networks as residential broadband platforms will impede the planned use of fiber in the access network. In particular, the report will take a look at how optical networking firms can readjust their marketing strategies to new product and customer types as the 5G revolution takes hold.

Media Contact:

Laura Wood, Senior Manager
press@researchandmarkets.com

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