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Optical components sales growth strong in 2015, despite weakness in capex and equipment sales
Four times a year, the LightCounting team collects company financials and operating metrics from across the optical communications value chain. More than 20 optical components vendors share comprehensive sales data with LightCounting every six months and provide guidance on a few key products every quarter. We review the data, compare it to our existing forecasts, and tell clients what is happening in the market, in the form of a Quarterly Market Update.

The just-published December 2015 update reflects our analysis of financials and vendor shipment data through the first 9 months of 2015 and guidance for Q4 2015. This graphic from the report summarizes the growth in service provider capex, and equipment and component vendor revenues, for the first 9 months of 2015 compared to the same period in 2014:

Figure 1:

It’s clear that telecom service provider capex is down in 2015 compared to 2014, due to completion or tapering down of some large deployment projects around the globe, including China Mobile’s LTE deployment, Vodafone’s Project Spring, and Sprint’s Network Vision. Mega-datacenter operators on the other hand increased spending by 9%, which although positive, is smaller than the double-digit growth rates we are used to seeing for this group.

Weakness in European and Japanese currencies also contributed to the decline in service provider’s capex , but had a minor impact on the spending of Web2.0 vendors.

Equipment maker revenues grew a scant 3% in the datacom segment, while the telecom segment is down a percent. ‘White box’ makers continue to make inroads in the datacenter equipment segment, while on the telecom side, Huawei’s and ZTE’s market shares gallop upward, and those of other incumbents languish. Keen interest in Software Defined Networking and Network Function Virtualization may also be a factor in dampening equipment demand, as service providers take a breather to rethink their network plans.

2015 sales growth among optical component companies through September 30 was a little better than at the equipment level, with datacom up 18% and telecom up 3%. One of the main reasons for this is the growing adoption of 100Gbps components, which carry a higher price tag than slower speed devices. Strong demand for 100G and FTTx optics in China is likely to continue in Q4 2015, as Chinese service providers are catching up on many delayed projects.

The second chart (below) shows 3Q 2015 sales growth for the main product categories that we forecast. Ethernet and WDM are the two largest segments in terms of revenues, and both grew at a respectable/healthy rate. Optical interconnects continued to show rapid growth but are still a very small segment, totaling a little over $50 million in sales in 3Q 2015. FTTx also experienced high growth, driven by an acceleration of China’s broadband plans. The wireless segment on the other hand was down considerably, but that was to be expected given the extraordinary amount of LTE gear deployed by China Mobile in 2014.

Figure 2:

Our Market Forecast published in August projected total optical transceiver market growth of 25% in 2015, assuming a very strong finish for the year. Subsequently, some public optical components companies gave rather soft guidance for the balance of the year in their 2Q 2015 earnings calls. At that time, we softened our outlook for optical components sales in 2015 from 25% to 15%. Based on 3Q results and guidance, we now believe growth will be closer to 13% for the year. Even so, full-year 2015 industry revenues will set a new record high, well above $4 billion. One of the reasons is that we are seeing private companies growing faster than the industry average and winning market share from the larger public vendors.

The Quarterly Market Update also highlights a number of mergers, acquisitions, and spin-offs, and new 100Gbps and 400Gbps products for Data Center Interconnect.

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