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The State of the Optical Communications Industry  • May 2016

Month  2015  

The State of the Optical Communications Industry: 2016 Profitability within Reach

   State  of  the  Optical  Communications  Industry  Report  –  May  2016  

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Abstract  ................................................................................................................................................  4  

Executive  Summary  ..............................................................................................................................  5  

Communications  is  being  re-­‐shaped  by  the  transition  to  digital  economies  ...........................................  5  

Globalization  or  nationalism?  Which  way  is  the  wind  blowing?  ..............................................................  5  

Mega-­‐datacenters  are  having  an  outsized  impact  on  optical  components  .............................................  6  

Optical  component  profits  slightly  improved  in  2015,  but  challenges  remain  ........................................  7  

Silicon  photonics  a  path  to  higher  profits?  ..............................................................................................  7  

Section  1:  Major  Trends  in  Telecom  and  Datacom  Services  ...................................................................  9  

Telecom  industry  growth  remains  stagnant  while  Internet  providers  thrive  ..........................................  9  

Telecom  service  providers  are  embracing  transformation  ....................................................................  10  

Telco  business  transformation  continues  through  M&A  .......................................................................  11  

Video  is  becoming  ubiquitous  on  the  Internet  .......................................................................................  12  

Cloud  computing  growth  continues  and  vendors  respond  ....................................................................  13  

Three  data  center  segments  have  emerged  ..........................................................................................  14  

Mega-­‐data  centers  are  driving  change  in  equipment  and  components  ................................................  15  

Section  2:  Supply  Chain  Structure,  Vendor  Profitability  and  Consolidation  ..........................................  16  

OC  vendor  profit  improving  but  still  behind  the  rest  of  the  supply  chain  ..............................................  17  

Digital  services  are  high  margin  businesses  for  most  OTT  service  providers  .........................................  17  

Telco  service  provider  profitability  increased  for  most  in  2015  .............................................................  19  

Equipment  vendor  revenues  and  profits  improved  versus  2014  ...........................................................  21  

System  vendor  mergers  and  acquisitions  continue  ...............................................................................  21  

OC  vendor  profits  improved  in  2015  ......................................................................................................  23  

IC  Chip  Suppliers  Remain  Healthy  for  the  Most  Part  ..............................................................................  25  

Compatible  transceivers  -­‐  an  overlooked  market  segment  ...................................................................  27  

Warranties  and  legal  status  ................................................................................................................  28  

Compatibles  market  channel  includes  resellers,  coders,  and  testers  ................................................  29  

Compatibles  –  sizing  the  market  ........................................................................................................  29  

Section  3:  The  Changing  Landscape  of  the  Optical  Transceiver  Market  ................................................  31  

Challenges  in  reaching  sustainable  profitability.  ....................................................................................  33  

Strategies  for  staying  ahead  of  competition.  .........................................................................................  34  

Is  the  laser  business  more  profitable  than  transceiver  manufacturing?  ................................................  34  

R&D  Investment  is  a  huge  burden  for  component  and  module  suppliers.  ............................................  35  

   State  of  the  Optical  Communications  Industry  Report  –  May  2016  

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Market  Share  Structure  and  Diversification  of  Vendors  ........................................................................  36  

100GbE  optics  for  mega-­‐datacenter:  opportunities  and  challenges  for  suppliers  .................................  38  

Vertical  Integration:  Is  It  Still  A  Key  Strategy  for  Profitability?  ...............................................................  40  

SONET/SDH  Market  Segment  .................................................................................................................  41  

Ethernet  Market  Segment  ......................................................................................................................  42  

Fibre  Channel  Market  Segment  ..............................................................................................................  44  

WDM  Market  Segment  ..........................................................................................................................  44  

FTTx  Market  Segment  ............................................................................................................................  46  

Wireless  Optics  Market  Segment  ...........................................................................................................  48  

Optical  Interconnect  Market  Segment  ...................................................................................................  49  

Section  4:  Impact  of  Chinese  Equipment  and  Component  Suppliers  ....................................................  51  

Huawei  Maintains  Dominance  in  the  Global  Telecom  Equipment  Market  ............................................  51  

ZTE  revenues  rebounded  in  2014  ...........................................................................................................  52  

FiberHome  revenue  growth  continued  in  2014  .....................................................................................  53  

Other  Chinese  Equipment  Vendors  ........................................................................................................  54  

Chinese  optical  component  companies  break  the  $1.5  billion  mark  .....................................................  55  

Appendix  A:  Summary  of  Financial  Data  .............................................................................................  58  

Appendix  B:  Profiles  of  Selected  Chinese  Vendors  ..............................................................................  63  

Accelink  ..................................................................................................................................................  63  

ATOP  Technology  ...................................................................................................................................  64  

Eoptolink  Technology  .............................................................................................................................  65  

HG  Genuine  ............................................................................................................................................  65  

Hi-­‐Optel  ..................................................................................................................................................  66  

HiSense  Broadband  ................................................................................................................................  66  

InnoLight  ................................................................................................................................................  66  

O-­‐Net  ......................................................................................................................................................  67  

Sunstar  Communication  Technology  .....................................................................................................  67  

Xiamen  San-­‐U  Opto-­‐electronic  Technology  ...........................................................................................  67  

Appendix  C:  Compatible  Transceiver  Reference  ..................................................................................  69  

   

   State  of  the  Optical  Communications  Industry  Report  –  May  2016  

4  ©Copyright  2016  by  LightCounting                                                                                                                                                                                    

Abstract  

 

This   report   provides   a   holistic   analysis   of   the   global   communications   industry,   during   a   period   of  unprecedented   growth   in   demand   for   broadband   connectivity   and   rise   of   the   Cloud   companies.   It  examines  business  strategies  of  traditional  telecom  service  providers,  Cloud/Web2.0  companies,  as  well  as  their  suppliers  of  networking  equipment,  optical  and  electronic  components.    

Detailed  analysis  of  revenue  growth  and  profitability  across  different  levels  of  the  industry  supply  chain  in   2010-­‐2015   is   used   to   identify   challenges   and  opportunities   for   the   future.   The   report   also   includes  review  on  the  latest  mergers  and  acquisitions  and  their  impact  on  the  market  landscape.  

This   report   takes   a   deeper   look   at   suppliers   of   optical   components   and   modules,   providing   market  shares   of   leading   vendors   sorted   into   the   several   categories   (top   3,   top   4–6,   top   7–10,   and   other  vendors).   It   includes   data   on   diversification   of   the   top   12   leading   suppliers   of   optical   transceivers   in  SONET/SDH,  Ethernet,  Fibre  Channel,  WDM,  FTTx,  Wireless,  and  Optical  Interconnect  market  segments.  Many  of   the   leading  component  vendors  shared  confidential   sales  data  with  LightCounting   to  support  this  study.  

The   success   of   Chinese   equipment   and   component   suppliers   is   evaluated   and   a   number   of   Chinese  component  vendors  are  profiled.