Slightly OT From CompoundSemi but this could have implications on overall chip demand in the telecom sector:
KMI's Optical Fiber Report Supports Overcapacity Thesis
March 1, 2004...Special Report... PennWell's KMI market research firm in Providence, Rhode Island USA has issued a report that appears to strongly support our Feb. 25th editorial that there remains a significant overcapacity issue, as evidenced by the abundance of product at last week's OFC in Los Angeles. As reported by KMI in a press release announcing their latest report on the topic (which our editorial staff had not seen prior to writing the editorial asking: "Too Many Solutions for Too Many Customers?") the research firm's estimation of the market was that the "world's last optical fiber shortage ended in 2001 when demand peaked at 119 million km. Two years later in 2003 fiber shipments to cable manufacturers dropped by 47% to 63.5 million km. On the other hand, worldwide fiber-making capacity only decreased by 10% to 145 million km, down from 161 million km in 2001." They graphically demonstrate this disparity between demand and capacity in the figures shown online in the press release. The findings are detailed in KMI's newest report: Worldwide Optical Fiber and Cable Markets: Market Developments and Forecast, published in January 2004.
According to the KMI report, this overcapacity has resulted in aggressive price competition, pointing out that, for the 47 fiber-manufacturing facilities that operated for at least part of 2003, the average-capacity utilization for all facilities was less than 50% and they surmised that this overcapacity meant that the worldwide average price for conventional single-mode fiber fell from $35 per km in 2001 to a record low of $15 per km in 2003. The further reported that the combination of lower prices for all types of fiber and lower unit-quantity shipments means that the market for bare fiber was $1.3 billion in 2003, which is down 75% from 2001. The demand forecast also shows that Asia will continue to be the largest regional market for cabled-fiber having accounted for 66% of all cable-fiber demand in 2003, which is a figure up from 29% in 2000. North America, however, fell from a 40% share in 2000 to an 18% share in 2003.
What caused the sharp increase in demand and capacity in the late 90s only to see demand plummet in 2001 and 2002? And why has North America been displaced by Asia as the world's leading market for optical fiber? Those are the provocative questions tackled by KMI in this report. According to their analysis, optical fiber has been the medium of choice for the world's telecommunication's network operators since the mid-1980s and it is more efficient and robust than the copper it replaced, thus it allows more information/data to be transmitted, a technology ideally suited to the requirements of the Internet age. KMI reminds us that optical fiber is used in two general applications: telecom and non-telecom. (Telecom refers to long-distance and local operators such as AT&T, MCI, Sprint, Verizon, SBC, and a host of other companies. Non-telecom traditionally involved CATV operators such as Time Warner Cable, Comcast, Cox, etc, utilities and other entities as well as private network operators that use fiber for internal information and communication purposes.)
It turns out, says KMI, that through most of the 1990s, telecom applications accounted for 70%-75% of all optical fiber deployed worldwide. With the advent of the network construction boom that began in 1999, telecom's share increased to 80%. Underlying that five-percent shift was a rapid increase in fiber demand. From 1999-2001, telecom applications totaled 195 million km, 142% greater than the 81 million km installed from 1996-1998. The surge in telecom-related fiber deployments, driven chiefly by externally financed long-haul network construction in the USA and Europe, outstripped the industry's capacity to make optical fiber. This new capacity came on line just as the telecom boom ended. More bandwidth was now available to the market than needed, which l ed to price competition, which meant that new operators defaulted on debt payments used to finance their network construction.
With the burst of the telecom bubble, points out KMI, cost cutting became paramount, and capital expenditure budgets for new construction in North America and Europe were reduced or eliminated. This meant that North America, the world's most developed telecommunication's market, saw fiber demand drop by 72% in 2003 from peak deployments in 2000. The long-distance market has been saturated, metropolitan rings in and around major cities have been completed, and CATV operators needed less fiber as they had already built out their networks to offer Internet and telephony services. They also point out that mainland China, which is able to basically start from scratch instead of dealing with legacy systems, has continued extensive deployments of optical fiber to upgrade its telecommunication's infrastructure, and that Japan, which is considered one of the major markets for optical fiber, is continuing deployment of fiber to promote fiber-to-the-home. Together these two countries accounted for 55% of all optical fiber installed in 2003. KMI concludes their publically-accessible overview by pointing out that, although Asia has become the world's largest market for optical fiber and has helped offset the decline in demand in both North America and Western Europe, that further consolidation in the fiber industry is clearly necessary to better balance supply and demand. For more information about this report contact Ms. Dorcie Sarantos: email dorcie@kmiresearch.com or telephone (401) 243.8114. |
