No recovery in sight for optical component market
By Bolaji Ojo
11/11/2002 3:53 PM EST
URL: ebnews.com
The global optical components market is forecast to collapse by the end of 2002 to less than one third of its size just two years ago and contract further in 2003 as continued pricing pressures and weak demand cut into sales and hasten the departure of major players from the sector.
In a report today, iSuppli Corp., El Segundo, Calif., said it expects the market for optical components to decline 45% in 2002, to $1.74 billion, from $3.2 billion in 2001. That follows a precipitous drop in 2001 of 49% after the market peaked at $6.2 billion in 2000.
A recovery to the 2000 level won't occur for the foreseeable future and the market may not top $2 billion by 2006 because of anemic demand from OEMs struggling with unrelenting pressures in a market that once held great hope and attracted players in droves.
"As the telecom industry continues to struggle, the outlook for the components market will remain exasperating through 2005," said iSuppli in the report authored by analyst Jagdish Rebello. "In a very difficult economic environment, the surviving carriers have become intent on saving costs and milking their legacy networks rather than on deploying new technologies."
The impact of the dramatic shift in the fortunes of the optical equipment market is being felt across the supply chain. While component suppliers have taken it fully on the chin, resulting in major players like Agere Systems Inc. and Nortel Networks exiting the sector, equipment manufacturers have been equally stunned by repeated body blows from capex-cutting service providers.
This year, the total market for optical equipment is forecast to drop 38%, slightly less than the components segment, to $26.7 billion, down from $43 billion in 2001 and $54.9 billion in 2000.
Equipment makers and their suppliers have been squeezed as wireline telecom companies have slashed capital expenditure -- by 27% in 2002, to $60.2 billion, from $82.7 billion in the prior year -- and focused on extracting more service from their existing networks.
With that process expected to continue, many equipment makers and suppliers won't survive the next couple of years and would have to explore strategic alliances with rivals or, like Agere and Nortel, shut down their optical components business, according to iSuppli.
"The shrinking TAM [total available market] will not be able to sustain all of the communication OEMs and there will be a major shakeout in the industry," Rebello said. "Optical communications companies are not only competing with each other for greatly reduced capex dollars, but are also contending with equipment inventories at carriers and the distressed assets of financially bankrupt service providers."
Not all of the players in the optical equipment market are hurting in the same way, however. Even as rivals are departing the optical components market, others are gaining market share. JDS Uniphase Corp. is holding tightly to its leading position while cash-rich new entrants like Intel Corp. are quietly building up product portfolios through internal development and acquisitions.
In the last six months, new market players, including the United Kingdom's Bookham Technologies and TriQuint Semiconductor, have emerged in the optical components sector by buying Nortel and Agere businesses, respectively. OEMs like Cisco could also build a dominant position in the market by buying rivals like Nortel, Rebello suggested.
For now, surviving equipment makers will have to pay closer attention to the financial health of their suppliers and make their selections not just on the basis of size or available technology.
"When working with a component supplier OEMs must choose vendors with financial strength to last throughout a prolonged downturn and vendors for whom optical components is a core business," Rebello said. |
