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The State of the Optical Communications Industry • May 2016
Month 2015
The State of the Optical Communications Industry: 2016 Profitability within Reach
State of the Optical Communications Industry Report – May 2016
2 ©Copyright 2016 by LightCounting
Abstract ................................................................................................................................................ 4
Executive Summary .............................................................................................................................. 5
Communications is being re-‐shaped by the transition to digital economies ........................................... 5
Globalization or nationalism? Which way is the wind blowing? .............................................................. 5
Mega-‐datacenters are having an outsized impact on optical components ............................................. 6
Optical component profits slightly improved in 2015, but challenges remain ........................................ 7
Silicon photonics a path to higher profits? .............................................................................................. 7
Section 1: Major Trends in Telecom and Datacom Services ................................................................... 9
Telecom industry growth remains stagnant while Internet providers thrive .......................................... 9
Telecom service providers are embracing transformation .................................................................... 10
Telco business transformation continues through M&A ....................................................................... 11
Video is becoming ubiquitous on the Internet ....................................................................................... 12
Cloud computing growth continues and vendors respond .................................................................... 13
Three data center segments have emerged .......................................................................................... 14
Mega-‐data centers are driving change in equipment and components ................................................ 15
Section 2: Supply Chain Structure, Vendor Profitability and Consolidation .......................................... 16
OC vendor profit improving but still behind the rest of the supply chain .............................................. 17
Digital services are high margin businesses for most OTT service providers ......................................... 17
Telco service provider profitability increased for most in 2015 ............................................................. 19
Equipment vendor revenues and profits improved versus 2014 ........................................................... 21
System vendor mergers and acquisitions continue ............................................................................... 21
OC vendor profits improved in 2015 ...................................................................................................... 23
IC Chip Suppliers Remain Healthy for the Most Part .............................................................................. 25
Compatible transceivers -‐ an overlooked market segment ................................................................... 27
Warranties and legal status ................................................................................................................ 28
Compatibles market channel includes resellers, coders, and testers ................................................ 29
Compatibles – sizing the market ........................................................................................................ 29
Section 3: The Changing Landscape of the Optical Transceiver Market ................................................ 31
Challenges in reaching sustainable profitability. .................................................................................... 33
Strategies for staying ahead of competition. ......................................................................................... 34
Is the laser business more profitable than transceiver manufacturing? ................................................ 34
R&D Investment is a huge burden for component and module suppliers. ............................................ 35
State of the Optical Communications Industry Report – May 2016
3 ©Copyright 2016 by LightCounting
Market Share Structure and Diversification of Vendors ........................................................................ 36
100GbE optics for mega-‐datacenter: opportunities and challenges for suppliers ................................. 38
Vertical Integration: Is It Still A Key Strategy for Profitability? ............................................................... 40
SONET/SDH Market Segment ................................................................................................................. 41
Ethernet Market Segment ...................................................................................................................... 42
Fibre Channel Market Segment .............................................................................................................. 44
WDM Market Segment .......................................................................................................................... 44
FTTx Market Segment ............................................................................................................................ 46
Wireless Optics Market Segment ........................................................................................................... 48
Optical Interconnect Market Segment ................................................................................................... 49
Section 4: Impact of Chinese Equipment and Component Suppliers .................................................... 51
Huawei Maintains Dominance in the Global Telecom Equipment Market ............................................ 51
ZTE revenues rebounded in 2014 ........................................................................................................... 52
FiberHome revenue growth continued in 2014 ..................................................................................... 53
Other Chinese Equipment Vendors ........................................................................................................ 54
Chinese optical component companies break the $1.5 billion mark ..................................................... 55
Appendix A: Summary of Financial Data ............................................................................................. 58
Appendix B: Profiles of Selected Chinese Vendors .............................................................................. 63
Accelink .................................................................................................................................................. 63
ATOP Technology ................................................................................................................................... 64
Eoptolink Technology ............................................................................................................................. 65
HG Genuine ............................................................................................................................................ 65
Hi-‐Optel .................................................................................................................................................. 66
HiSense Broadband ................................................................................................................................ 66
InnoLight ................................................................................................................................................ 66
O-‐Net ...................................................................................................................................................... 67
Sunstar Communication Technology ..................................................................................................... 67
Xiamen San-‐U Opto-‐electronic Technology ........................................................................................... 67
Appendix C: Compatible Transceiver Reference .................................................................................. 69
State of the Optical Communications Industry Report – May 2016
4 ©Copyright 2016 by LightCounting
Abstract
This report provides a holistic analysis of the global communications industry, during a period of unprecedented growth in demand for broadband connectivity and rise of the Cloud companies. It examines business strategies of traditional telecom service providers, Cloud/Web2.0 companies, as well as their suppliers of networking equipment, optical and electronic components.
Detailed analysis of revenue growth and profitability across different levels of the industry supply chain in 2010-‐2015 is used to identify challenges and opportunities for the future. The report also includes review on the latest mergers and acquisitions and their impact on the market landscape.
This report takes a deeper look at suppliers of optical components and modules, providing market shares of leading vendors sorted into the several categories (top 3, top 4–6, top 7–10, and other vendors). It includes data on diversification of the top 12 leading suppliers of optical transceivers in SONET/SDH, Ethernet, Fibre Channel, WDM, FTTx, Wireless, and Optical Interconnect market segments. Many of the leading component vendors shared confidential sales data with LightCounting to support this study.
The success of Chinese equipment and component suppliers is evaluated and a number of Chinese component vendors are profiled.