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What's the network market look like for optical equipment?

Analyst Jeff Ogle writes that the packet optical transport market is poised for growth.

Because of the inherent advantages of optical technology, it has become the standard foundation for practically all network types. This, in turn, makes the optical equipment market a very competitive arena, one that has grown to almost 20 vendors. The vendor list includes both the well-known incumbent players that have been around for decades as well as newer entrants that are offering a different approach or value proposition to provide optical connectivity and control.

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In addition to introducing innovative approaches to problem solving, optical networking equipment vendors are also finding opportunities in the traditional service providers (both wireline and wireless), content service providers, cloud providers and the enterprise networks that require a high-speed, low-latency infrastructure to deliver services. Although the overall optical equipment market has remained relatively flat -- averaging around $12.65 billion per year for the past four years according to ACG Research -- it seems poised for another wave of build-out. The most recent one occurred in 2007 to 2008, driven primarily by build-outs in the metro optical and wireless networks. With product technology cycles usually running on an approximate seven-year cycle, we anticipate the next wave of network build-outs and expansion should start in late 2013.

If recent activities within the market are any indication, optical equipment vendors seem to be targeting both carriers and enterprises alike in this next cycle. Practically all enterprises are embracing optical transport, either directly or through a managed service offering. This is due to optical's inherent benefits in security, high data transport rates, costs, low latency and its ubiquity. When combined with emerging concepts like software-defined networking (SDN), optical offers a compelling network solution.

Vendors to look at include Cyan Inc., which is specifically targeting the packet-optical transport market. Cyan is a major SDN proponent and is a backer of the Blue Orbit Ecosystem, a consortium of software and hardware vendors working to provide multivendor SDN applications. Infinera is targeting the long-haul dense wavelength division multiplexing market segment with an SDN-ready platform and has managed to secure a top-five market position with industry incumbents Alcatel-Lucent, Ciena Corp., Huawei and ZTE Corp.

Finally, Coriant, the company that purchased Nokia Siemens Networks' optical networks business earlier this year, is combining that business with its holdings in Sycamore Networks to target tier-one service providers and large enterprises with its optical transport products.

To sum up, the optical market's overall positive annual growth, in combination with vendors' financial performance, indicates strong demand and a competitive environment. We expect to see a double-digit rebound in revenues for the optical segment this year, driven by announced wins as well as build-outs and upgrades now underway. However, competition will remain fierce, especially within the POTS optical market segment, and there will be additional pressure fueled by demands to support mobile infrastructure.

About the author:
Jeff Ogle is principal analyst, optical, with ACG Research. He can be reached at joggle@acgresearch.net.

This was last published in August 2013

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