According to market research firm iSuppli Corp., ten years after the Internet bubble burst and took the global telecommunications business down with it, the market for optical telecom network equipment finally has commenced a sustained recovery.
Worldwide optical telecom network equipment revenue will amount to $13.5 billion in 2010, up 7.7 percent from $12.5 billion in 2009. Revenue will continue to rise during the next four year’s until it reaches $22.1 billion in 2014, the highest total since the market peak of $24.95 billion in 2000. While revenue briefly spiked in 2006 and 2007, the rise was not sustainable, with the market shrinking to depressed levels again in 2008 and 2009, as presented in Figure 1 attached.
“During the final stages of the Dot-Com bubble in 2000, when everyone was sure that the boom would last forever, network operators sank billions into infrastructure equipment and fiber,” said Lee Ratliff, Senior Analyst (Broadband and Digital Home) for iSuppli. “However, when the boom went bust, that fiber was left idle—becoming so called ‘dark fiber’—with much of it remaining unused for a decade. However, with the continued growth of the Internet, the industry finally has absorbed the excess capacity, lighting up the vast excess dark fiber from the bubble, and prompting companies to invest in upgraded optical equipment.”
The new Internet boom
The revival of optical networking is being fueled by the continued expansion of the Internet. “While the heady days of the Dot-Com era are gone forever, the Internet is still expanding at a Compound Annual Growth Rate (CAGR) of around 45 percent,” Ratliff noted. “Major factors driving the Internet’s growth include the explosion of high-bandwidth video traffic, peer-to-peer traffic, the rapid expansion of China’s broadband market and the deployment of Fiber-to-the-Home (FTTH) systems.”
The ever-expanding demand for bandwidth is prompting optics in existing fiber networks to be upgraded to higher speeds. Telcos also are increasing their deployment of Dense Wavelength Division Multiplexing (DWDM), a technology that increases the speed of existing fiber.
Furthermore, new fiber is being installed at rapid rate. Major civil engineering projects including the East Africa Submarine Cable System (EASSy) are helping to promote growth.
China boom
In April, China’s Ministry of Industry and Information Technology (MIIT), together with sixother ministries, announced a plan to provides tax incentives and financial subsidies for domestic fiber broadband equipment, optical chip and optical module manufacturers.
Driven by this stimulus, broadband Internet subscribers in China are set to rise to 242.7 million in 2014, up from 132.5 million in 2008, according to iSuppli’s China Research service. Along with such an increase, China’s telcos will double their spending on passive optical network equipment from 2010 to 2014.
Optical semiconductors and MEMS recover
After nearly a decade of stagnation, revenue from semiconductors used in optical networks also is finally is set to begin a multiyear expansion in 2010. Optical network semiconductor revenue is projected to expand to $3.6 billion in 2014, up from $2.1 billion in 2010.
Within this semiconductor segment, the market for optical MEMS for telecom equipment is expected to enjoy a renaissance.
“As deployment of (FTTH) surges, there’s a need to build up metro and long-haul networks to accommodate faster data rates,” said Jérémie Bouchaud, director and principal analyst for MEMS research at iSuppli. “This will have a positive impact on sales of optical MEMS used in metro and long-haul optical telecommunications gear.”
Wavelength-Selective Switching Reconfigurable Optical Add/Drop Multiplexers (WSS ROADMs), devices that enhance the agility of optical networks, are expected to be the fast-growing portion of the optical telecom MEMS market.
Furthermore, MEMS are experiencing rapid growth as Variable Optical Attenuators (VOAs), and are taking share from competing devices. Chinese players like O-NET are rapidly adopting MEMS for their VOAs. As a result, unit shipments of MEMS VOAs will grow by 78 percent in 2010.
Other attractive areas for MEMS in optical networks include Variable Optical Attenuators (VOAs), tunable filters, cross connects and 1XN switches.