Analyst Sees Booming Optical Growth (Back to the Past) (WRKoss)

Longish … a good counterpoint to Lightreadings “Booming Optical Growth” article. ” .. but the fact remains — this is not a sexy business. Andrew@Nyquist picks out the best tidbits. It is also cool that LR Author Scott Clavenna Comments on this as well. Read On. — iain —

All true, man, and very perceptive. Boom sure is a relative term isn’t it? Despite being able to create a chart that goes up and to the right for the optical market, this really can’t be seen as a boom, and I totally agree that this market lacks real verve. The market, in fact, is rather mean these days, with continued consolidation of carriers and suppliers doing little more than furthering price compression and retrenching. The innovations that get rewarded in a timely fashion are hard to find.

Positive notes: Ciena is profitable today. Infinera keeps winning customers. JDSU shipped its 10,000th ROADM.

Other notes: about three of the boxes above could be checked, so that’s a sign of life/boom, but without quality, competitive startups this market will retain its meanness, even as it grows.

Why did LR post this article, with this headline? Come on! It’s Light Reading – well, CMP’s Light Reading to be accurate – and positive notes about optical are like manna around here. It’s in our blood, our roots. Been a long time…

cheers,

Scott

Posted by: Scott Clavenna | December 14, 2006 at 16:28

Analyst Sees Booming Optical Growth (Back to the Past): “

That was
the headline stretched across the top of Lightreading.com around
3:45pm yesterday. When you read the
contents of the article it stated that the long haul optical WDM market is
predicted to grow 10-12% year over year. That is nice stable growth, but I would not describe it as booming. It then went on to predict size and growth
for the metro optical, ROADM and MSPP markets.

Booming_optical_market




Recently,
I have posted commentary on the challenges for suppliers in these optical markets. With the prediction of a booming market,
perhaps it is prudent to restate the challenges for the overall optical market
and identify some metrics and signs to look for that will indicate the market
is healthy and may again become a boom market.

– Market Share is Stable: Market share is not
dynamic. It is not growing rapidly; it
is not being exchanged between suppliers, new service providers are not
entering the market to pressure the incumbents and at the end of the each
calendar year – not much has changed in the ranking of overall vendor market
share. Tier 1 service providers are
favoring their incumbent suppliers. The
decision loop has not been broken.’

– Real Innovation is Limited: When was the last time one of
the big optical suppliers was truly challenged by a smaller, innovative new
company? Most new startups compete on
price, not on an innovative technology shift in which the end-users realize
they must have the technology.

– Difficult to Achieve Substantial
Profits
:
Competition is tough and profits suffer. When was the last time you saw an optical company making 65 points of
GPM? ‘

– Global Competition: It is a global market and
suppliers in Asia, Middle East and Europe have lower
cost models. Looks like a
microcosm of the DRAM market of the 1980s. ‘

– Not Really Exciting: Spin it anyway you want, blame
it on John Roth, the go-go 90s, but the fact remains this is not a sexy
business. Perhaps we are all still
suffering from a tech/telecom hangover. The good news is that the optical business has legs and will become
increasingly important, but the effects from the crash still turn people away.

As for
the question as to why Lightreading.com posted such an article and headline? I would happen to guess that they did this
because there is not much need for a web site focused on the optical networking
market if the market is not booming. It
should be noted that Nortel’s optical business unit had the following
performance from 1997-2000:

1997 $1B
1998 $3B
1999
$5.5B
2000
$10.6B’

A market
that enables and sustains growth of that magnitude is a booming market. As an industry, we need to conscious of the
past and be careful to frame the expectations of the future. Here is another quote about Nortel and the
size of the optical market:

Clearly, Nortel’s strategy is working: It
now has a 43 percent share of the torrid market for optical networking
equipment, which is expected to triple, from $31 billion in 1999 to $90 billion
by 2003, according to RHK, a telecom research firm based in San Francisco.
Nortel expects optical
Internet revenues to grow in excess of 125 percent in 2000 over 1999, to exceed
$10 billion. Analysts say this is substantially greater than Cisco’s optical
revenues, and indeed Nortel’s total revenues are higher as well, although this
number still includes sizable sales of traditional electronic
telecommunications equipment, a market in which Cisco does not participate
.’

For the
purpose of comparison, note the $90B 2003 market prediction compared to
yesterday’s $8B market predication by 2008. How will we know the optical markets will enter a stage beyond 10%
growth and maybe someday be considered booming? Here is the sequence of events and metrics to look for:

Stage 1 (Skating Where the Money will be)

oBusiness
plans for system level optical companies are being considered and/or funded by
venture capitalists

oCisco
is not shopping their optical products to the survivors of the 1990s optical
war

oSome
analyst writes a report predicting a $200B optical market

oAnalysts
declare video the ‘killer app’ for optical networks as email was so enshrined
in 1996 by Mary Meeker (oops…this just happened…check mark)

Stage 2 (Willing to Give Guidance on the Future)

oNew
optical startups funded

oInfinera
IPO

oCiena,
Sycamore breakout of revenue bands

oCEOs
of Networking Companies (Semis and System Level) Provide Growth Guidance

oTelecosm 2: Return of the Light is published

oDave
Huber starts another optical company

oYou
are at a cocktail party and two bankers start a debate between OOO and OEO

Stage 3 (Booming Market – Bulls Are Back)

oService
Providers willing to buy from new optical system level entrants

oImproving
product margins by optical system suppliers

oNortel,
Lucent/Alcatel and Cisco return to the optical wars

oSeveral
ultra-large optical switches are announced

oCxOs
are once again seen on CNBC talking physics and playing with toy mirrors

oChambers
Announces Cisco never left the optical business

oAverage
people want to hear about crystal growth yields

oYou
Google ‘MSPP 2 startup’ and find 348 companies funded by VCs

oTelecom
people travel to’ Tulsa again, still no one knows why

oBernie
Ebbers is a free man, buys an optical switch and a hotel in Jackson MS and offers free light to every room, but he counts the coffee cups

oA California startup announces an ASIC that integrates the equivalent of 1000 Cerent 454s on a single
chip. This starts an ‘454 integration
war’ between several semi companies


oSuperComm
Returns to
New Orleans and calls itself SuperComm and acts like the last ten years are a forgotten memory

As
always, thoughts and comments welcome, whether private or public.

/wrk

(Via Technology and Geopolitics.)

Advertisements

Comments are closed.