ZTE slips by Alcatel-Lucent in global ON market; top two slots now held by Chinese vendors. 100G passes $1bn, but overall market remains sluggish

London, 29 May 2013 – Ovum’s analysis of 1Q13 results in the $14.5bn global optical networking (ON) market has highlighted several key shifts. First, ZTE overtook Alcatel-Lucent to grab the number two spot; for the first time, Chinese vendors hold the top two ranks in optical networking. Second, growth in 100G remains a bright spot as annualized revenues exceeded $1bn for the first time ever. Third, market growth overall remains difficult, challenging equipment vendors; only Fujitsu posted sequential and year-over-year gains.

“While it is not uncommon for the market to decline going into the first calendar quarter, the decline is worrisome as this is the fifth straight time the market has declined versus the prior year's quarter, and quarterly revenues are the lowest they’ve been in six years,” says Ron Kline, network infrastructure analyst at Ovum. “On the bright side, 100G continued to show strong growth both sequentially and year over year. 100G port shipments in 1Q13 grew 41% and revenues grew 24% versus 4Q12, with annualized revenues surpassing $1bn for the first time. Twenty vendors shipped 100G for revenue in 1Q13 and more are slated to enter the market throughout the year. Guidance from vendors is cautiously optimistic, with good short-term visibility into order growth; long-term visibility remains cloudy.”

In a new market share analysis*, the global industry analysts verify that besides 100G, sales of next-gen converged packet-optical gear, including OTN switching gear, is up compared to the year-ago quarter, although annualized sales of 40G gear declined for the first time, indicating perhaps that the 40G market is starting to slow as vendors price 100G aggressively. From a regional perspective, Ovum reveals that spending compared to the year-ago quarter dropped in Asia-Pacific and EMEA, remained flat in North America, and grew 15% in South & Central America.

The global industry analysts believe the current downturn is being driven by a quickening in the shift in spending to non-IP/Ethernet aggregation equipment, faltering economic growth in Europe, and lower pricing due to intense vendor competition.

“The 1Q13 global ON revenue results are consistent with our most recent annual forecast published in April 2013. Ovum is projecting the optical networks market will exceed US$17.1bn by 2018, for a 2.7% CAGR from 2012. We project that all ON market regions will resume growth in 2013 as carriers who exercised fiscal caution and deferred spending in 2012 restart their plans. Growth of IP, video, mobile data, and data center expansions occurring in urban and more remote areas will be an ongoing catalyst for network footprint extension and capacity growth. Submarine network footprint and capacity will also expand in 2013,” concludes Kline.