Market research firm LightCounting finds in its latest Optical Communications Market Forecast report that while demand for optical networking equipment, modules and components attained record levels in 2016, the market was weak in the first quarter of 2017.
LightCounting reports that Huawei led the market in terms of growth in 2016, but significantly reduced purchases of optics in the first quarter of 2017 and forecasts that this weakness is likely to continue in the current quarter. However, the research firm believes that this a temporary slowdown in the optical market.
Looking at data for overall capex of the Top 15 service providers globally, LightCounting notes a sharp decline in Asia in 2016 due to lower spending by the big three Chinese operators, while spending in the U.S. and Europe remained stable versus 2015. Even so, 2016 was a record year for optical communications equipment revenue, which typically accounts for around 10% of service provider capex.
China
China Mobile was the largest consumer of optics in 2016 and added 30 million FTTH subscribers and deployed more than 50,000 ports of 100 Gbit/s DWDM optics into its core network. In addition, upgrades of China Mobile's metro and metro access networks drove demand for 10 Gbit/s optical components and modules. LightCounting notes that while some upgrade projects were completed in 2016, many are ongoing.The research firm also cites a presentation by China Mobile at OFC 2017, in which the operator said that traffic growth rates in its network rose from 46% in 2013-14 to 88% in 2015-16, compared with a growth global rate of around 30%. Therefore, China Mobile, along with China Telecom and China Unicom, are expected to continue their high levels of spending to address above average traffic growth. LightCounting states that the capex-to-revenue ratio for Chinese service providers is around 25%, compared to 15% for all other operators.
LightCounting estimates that deployments of 100 Gbit/s DWDM ports in China in 2016 translate to a 70% increase in network bandwidth, and predicts that Chinese service providers will increase bandwidth in DWDM networks by a further 40% in 2017. However, it believes that deployments will increase in 2018 to keep pace with traffic growth.
Cloud DCI
Regarding DWDM deployments in the cloud/data centre interconnect (DCI) and enterprise segments, LightCounting observes that while this is a relatively small market in terms of total bandwidth, it is growing much faster that the service provider segment. As a result, bandwidth demand from cloud companies connecting data centres is expected to be very high in 2017.
LightCounting notes that Amazon and Facebook report that traffic inside their data centres is increasing by 100% annually. While growth in traffic between data centres is expected to be slower, based on the rate of construction of new data centres the research firm predicts 100% bandwidth growth for DCI traffic 2017. This increase in DWDM bandwidth demand for cloud DCI is expected to compensate for lower demand in China.
