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The State of the Optical Communications Industry: Maintaining Profitability in 2014

The average net margin of publicly-traded optical component and module suppliers moved into positive territory in only three out of the last seven years. In contrast, the market growth rate remained positive for six out of the last seven years. Can these vendors maintain profitability in 2014-2015 if the market's growth remains steady?

The macroeconomic environment will continue to impact the business of optical component and module suppliers, but these companies are much stronger now, compared to even two-to-three years ago. However, the optical components and module vendors remain a very small part of the global optical communications industry supply chain and their business is likely to remain volatile.

This report presents a detailed analysis of economic challenges faced by companies throughout the communications supply chain. It examines the profitability and long-term strategies of content providers as well as equipment and component manufacturers. One report section focuses on emergent equipment and component suppliers in China and includes brief profiles of several new entrants.

This report offers an in-depth look at the structure of the optical component and module industry in several market segments, including SONET/SDH, Ethernet, Fibre Channel, WDM, and FTTx. This analysis includes data on market shares of leading vendors sorted into the several categories (top 3, top 4-6, top 7-10, and other vendors), illustrating fragmentation of these market segments. Data on diversification of the top 10 leading suppliers of optical transceivers presented in the report suggest that most component suppliers remain highly specialized. Leading module vendors shared confidential sales data with LightCounting to support this study.

Table of Contents

Abstract

Executive Summary

Section 1: Major Trends in Telecom and Datacom Markets

  • Service Providers Continue to Pursue Consolidation Strategies for Growth
  • Service Providers Moving into Cloud Computing
  • Over the Top: Competitive or Complementary?
  • Datacenters Scaling Up
  • Flat Datacenter Architectures
  • Internet Companies Build Datacenters Differently Than Telcos
  • Service Providers Adopting Transparent Caching to Meet Service Demands

Section 2: Supply Chain Structure, Vendor Profitability and Consolidation

  • Profitability Imbalance Across the Supply Chain
  • Content Providers Benefit from Free Access to Networking Infrastructure
  • Equipment Suppliers Continue to Restructure As Datacom Equipment Vendors Thrive
  • Optical Component and Module Vendors Reached Profitability in 2013, Can They Keep This Up?
  • IC Chip Suppliers Remain Healthy

Section 3:The Changing Land scape of the Optical Transceiver Market

  • Market Share Structure and Diversification of Vendors
  • Vertical Integration: A Key Strategy to Profitability
  • SONET/SDH Market Segment
  • Ethernet Market Segment
  • Fibre Channel Market Segment
  • WDM Market Segment
  • FTTx Market Segment

Section 4: The Rise of Chinese Equipment and Component Suppliers

  • Huawei Maintains the Dominant Position in the Global Telecom Equipment Market, but it is off to a slow start in 2014
  • ZTE Returned to Profitability in 2013 and Reported Solid Results in Q1 2014
  • FiberHome reported strong growth in international business
  • Alcatel Lucent Shanghai Bell Was the First Foreign---Invested Company in China's Telecom Market
  • Other Chinese Equipment Vendors
  • The Emergence of Optical Component and Module Suppliers
  • Challenges and Opportunities Ahead

Appendix A: Summary of Financial Data

  • Table A1: Annual Revenue Reported by Top Content Providers (Millions of Dollars)
  • Table A2: Annual Net Margin Reported by Top Content Providers
  • Table A3: Annual Revenue Reported by Top Ten Service Providers (Millions of Dollars)
  • Table A4: Annual Net Margin Reported by Top Ten Service Providers
  • Table A5: Annual Revenue reported by leading system vendors (Millions of Dollars)
  • Table A6: Annual Net Margin Reported by Leading System Vendors
  • Table A7: Annual Revenue Reported by Communication Semiconductor Vendors (Millions of Dollars)
  • Table A8: Annual Net Margin Reported by Communication Semiconductor Vendors
  • Table A9: Annual Revenue Reported by Publicly Traded Optical Component and Module Vendors (Millions of Dollars)
  • Table A10: Annual Net Margin Reported by Publicly Traded Optical Component and Module Vendors

Appendix B: Profiles of Selected Chinese Vendors

  • Table B1: Revenues of the Top Ten Chinese Optical Component and Module Vendors (Millions of Dollars)
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