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GROWING INVESTMENTS OF WEB 2.0 COMPANIES INTO NETWORKING INFRASTRUCTURE ADDS EXCITEMENT TO THE MARKET

Eugene, Oregon, 26 February 2015, LightCounting, a leading optical communications market research company, today released its semi-annual optical communications market forecast report. This report analyses the optical industry supply chain from optical component vendors, to service providers and Web 2.0 companies, to develop a five-year forecast for sales of optical components and modules. This market is projected to reach $5.6 billion in 2015 and $8.9 billion by 2020. LightCounting is projecting that sales of 100G optical transceivers and related components will exceed $1 billion in 2015 and reach $3.3 billion by 2020.


2014 was a good year for the optical networking industry and expectations for 2015 are high, but so are the risks. Investments into optical networking infrastructure by service providers still account for the bulk of the industry’s cash flow, but it is the Web 2.0 companies that accelerate deployments of the latest optical technologies. Cutting edge networking infrastructure gives an edge to companies like Google and Microsoft, but the timing of upgrade projects by these Internet giants have the ability to shake up the market in 2015 and beyond.


LightCounting estimates that the top fifteen Web 2.0 vendors, all part of the LightCounting Internet Index, will spend $50 billion in 2015 on servers, networks, and other infrastructure, up from $38 billion in 2014 and $ 30 billion in 2013. In contrast, telecommunications service provider’s CapEx is estimated to have grown by just 2% in 2014 and it is expected to stay flat in 2015. If this disparity continues, infrastructure spending by the LightCounting Internet Index companies will exceed that of the top fifteen telecommunications service providers within five-to-seven years.


All major telecommunications service providers invested heavily in deployments of broadband access technologies, including FTTH and 4G LTE, over the last five years and many of these projects are reaching completion now. AT&T's Project VIP is entering its final year with the LTE coverage goal met, and the company plans to reduce its CapEx to $18 billion in 2015 compared to $21.2 billion in 2014. Softbank has completed its main LTE rollout in Japan and will significantly trim its domestic CapEx over the next two years.


The scale and speed of 4G LTE deployments by China Mobile in 2014 were unprecedented. China Telecom and China Unicom are still waiting to be granted FDD-LTE licenses, their LTE technology of choice. The two companies are trialing hybrid TD and FDD-LTE networks in up to 56 cities while they wait. If the Chinese government finally grants them FDD-LTE licenses, China Telecom and China Unicom will move quickly to deploy their networks. However advanced the two operators are in their FDD-LTE network deployments in anticipation of the granting of licenses, it is hard to see them catching up to China Mobile. Indeed, China's 4G race may already be won.


Over the past five years, Web 2.0 companies also completed a significant number of networking and mega-datacenter installations but the number of these projects continues to grow. More importantly, upgrade cycles for servers, switches, routers and all the interface optics in mega-datacenters are expected to be as short as three years. As long as Web 2.0 companies continue to see high-speed optics as a critical element for maintaining competitive advantage in their businesses, demand for new optical technologies will remain strong.

 

 


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