FEBRUARY 20, 2008 By Stephen Hardy -- Just in time for OFC/NFOEC next week, Lightwave's February issue contains the editors' picks for the Top 5 component and subsystems vendors for 2007.
JDSU maintained the top spot on our list for the fifth consecutive year.
This annual exercise in hubris is completely subjective. (We could just reprint some analyst's market figures, but what would be the fun of that?) Our rankings combine financial success, analysts' input, and our own opinions about which companies are innovating, consolidating, and generally acting like market leaders.
We don't imagine everyone will agree with our rankings, which is why we've set up an area on our blog where you can tell us where we went wrong -- or right, for that matter.
So here's the list. Note that, because we had to get the magazine to the printer, we made our determinations based on the information available in January. So the explanations that follow don't highlight activity since then.
JDSU (search for JDSU) earns our top spot by retaining its market share lead. That lead slipped a bit, both in terms of raw numbers (12.4% of Ovum RHK's most recent rolling four-quarters market share estimates, compared with 14.3% at the same time the previous year) and the gap between it and the second-leading vendor. However, it wasn't due to a lack of initiative on the company's part.
In the acquisition arena, JDSU snapped up datacom and VCSEL expert Picolight (search for Picolight) in May of last year for approximately $115 million in stock (and its recent acquisition of Westover Scientific's Fiber Optic Division indicates it plans to remain aggressive this year). The company also partnered with Mintera Corp. (search for Mintera) to strengthen its hand in the emerging 40-Gbit/sec market and provide a pathway to 100 Gbits/sec; the partnership included an investment in the high-speed transmission technology firm.
The company's performance was symptomatic of the space as a whole. Ovum RHK reported that the company saw its sales decline 3% sequentially in the first quarter of calendar 2007 and another 12% the following quarter. However, it reported quarter-on-quarter revenue increases in both its optical communications and advanced optical technologies segments in its fiscal first quarter, which coincides with the third calendar quarter of 2007.
Finisar (search for Finisar), our Number 2 company, experienced a year similar to JDSU's, although it didn't slip as much in terms of market share (9.4% after Q3 of 2007, versus 10.5% after Q3 of 2006). As a result, the company actually gained on JDSU, closing its gap from 3.8% to 3.0%. The fact that the company upped revenues 9% sequentially in the second quarter of calendar 2007 undoubtedly helped. It also scored the highest in our reader survey for mindshare among transceiver/transponder vendors.
The company also got into the acquisition game, announcing at OFC/NFOEC in March that it had purchased Kodeos (search for Kodeos) and Azna (search for Azna). The two firms specialized in dispersion-tolerant transmission technology, which should position Finisar to offer products at 10 and 40 Gbits/sec as well as make a play when 100G goes mainstream.
The company didn't end 2007 on a positive note, however. Its Q2 fiscal 2008, which ended last October 28, showed a downward revenue trend from both the previous quarter and the same quarter of the prior year. Finisar cited several internal issues related to redesigns and supplier hiccoughs, as well as excess SAN transceiver inventory at a major customer, as the reasons for the disappointing results. Chairman, President, and CEO Jerry Rawls underscored the shortfall was not due to a softening in overall customer demand. (Note: The company recently preannounced much better Q3 results.)
While the top two companies saw their market share erode slightly, Number 3 vendor Sumitomo (search for Sumitomo) earns its ranking based on its ability to maintain its share year on year at 8.4%. The company has its fingers in many areas of the optical communications components, subsystems, and fiber markets through a variety of subsidiaries that often have subsidiaries themselves. For example Sumitomo Electric Industries (search for Sumitomo Electric Industries) does business in the U.S. under the names ExceLight Communications (for transceivers; search for ExceLight) and Sumitomo Electric Lightwave (for cabling, splicers, and related products; www.sel-rtp.com). Meanwhile, a subsidiary with the unlikely name of Sumitomo Osaka Cement (search for Sumitomo Osaka Cement) offers a line of lithium niobate modulators, including devices for 40-Gbit/sec applications. Sumitomo markets its component, subsystem, and cabling products primarily in Asia and North America.
The company didn't announce any acquisitions this past year. However, it did reveal in February of last year that it has shipped 10 million laser diodes since 1991. It also launched production of SFP+ transceivers and a new line of 2.5-Gbit/sec SFP DWDM devices. It also helped launch a multisource agreement for 40-Gbit/sec transmitters and receivers.
Opnext (search for Opnext) repeats as our Number 4 company, thanks to a strong gain in market share that thrust it into the fourth spot in Ovum RHK's rankings. It also successfully launched an IPO. Unfortunately, at press time its shares were trading at less than a third of the value they had attained on their first day of trading, which is the primary factor that limits them from being higher on our list. Having to preannounce earnings below guidance for the quarter ending December 31, 2007 (its fiscal third quarter), didn't help its case either.
However, the company expects better revenues in its fiscal fourth quarter, which should restore the luster it had through most of 2007. The third fiscal quarter bump likely will end a string of five consecutive quarters of increased profitability, and its expected numbers in that quarter would still surpass what it made during the same quarter of 2006. The company announced in December its 10-Gbit/sec transceiver shipments had reach 500,000 -- after announcing it had reached 250,000 earlier in the year. Meanwhile, it is positioning itself as a player in long-reach 40-Gbit/sec applications.
Our fifth and final spot goes to Avago Technologies (search for Avago). While doubt has been cast in previous editions of our Top 5 rankings about the longevity of the company's commitment to the optical communications space, Avago continues to build on its strength in the datacom niche. While the company no longer provides separate sales figures for its optical communications activities in the wake of its spin off from Agilent, Daryl Inniss at Ovum RHK estimates that Avago's total market share might be the third or fourth highest in the industry.
The company has been particularly aggressive in Fibre Channel, offering the industry's first 8-Gbit/sec SFP transceiver in December. In the Ethernet world, it announced a 10GBase-LRM device in an X2 form factor in May. However, it hasn't focused on datacom exclusively. A new optical transceiver specifically targeted at the wireless base station market, unveiled at ECOC, provides one such example. The company also acquired Infineon's plastic optical fiber business. Its 10-Gbit/sec VCSEL technology also achieved Telcordia GR-468-CORE qualification.
So why didn't the company rank higher? The fuzziness on its sales figures provided some doubt in our minds, as did the fact that the company appears to have something of an identity crises within the market. Our transceiver survey showed that readers overwhelmingly think of Agilent when they think of the company's product line, which indicates that Avago still has branding issues that it has yet to overcome.