Ovum-RHK: Optical networking market tops $3B for third consecutive quarter

May 16, 2007

MAY 16, 2007 -- Ovum-RHK says that, based on its preliminary analysis of first-quarter 2007 results for optical networking equipment vendors, global revenues were down 6 percent in 1Q07 versus 4Q06 and up 22 percent versus the year-ago quarter.

MAY 16, 2007 -- Ovum-RHK (search for Ovum-RHK) says that, based on its preliminary analysis of first-quarter 2007 results for optical networking (ON) equipment vendors, global revenues were down 6 percent in 1Q07 versus 4Q06 and up 22 percent versus the year-ago quarter.

Strong growth in the North American market countered declines in Asia-Pacific, CALA, and EMEA to limit the seasonal quarterly decline to 6 percent. Year over year, ON market growth topped 20 percent for $12.3 billion annualized spending. Of the top vendors, Nokia Siemens Networks (NSN) and Tellabs each benefited from the strong North American market to post the largest sequential revenue gains, while Alcatel-Lucent, Huawei, NEC, and Nortel each posted revenue declines of over 10 percent.

"As predicted, the pause in spending in North America in the second half of 2006 ended in 1Q07, with strong spending gains in all product segments except legacy long-haul DWDM," said Dana Cooperson, vice president, practice leader, network infrastructure at Ovum-RHK. "Spending in China, as expected, was seasonally down. The anemic Japanese market lagged historical expectations in that country's last fiscal quarter as the NTT companies continued to hold back on optical network upgrades."

Ethernet and 10-Gbit/sec transmission continued to grow strongly, as did both metro WDM and next-gen multi-reach DWDM for network backbone applications. Meanwhile, despite an increase in the number of subsea projects announced and awarded over the past six months, spending on submarine line terminal equipment dipped in the quarter. Global spending continues to be driven by bandwidth growth across a wide spectrum of broadband wireline and mobile applications, including video content applications.

1Q07 highlights for the optical networking equipment market and the top 10 vendors included:

1Q07 revenues were $3.1 billion, down 6 percent versus 4Q06 and up 22 percent versus 1Q06.
Alcatel-Lucent (ALU) remained the only vendor to control over 20 percent of the $12.3 billion annual optical market. Revenue for the company was down 17 percent sequentially but up 15 percent year over year. The sequential rebound in ALU's North American performance mitigated but did not overcome seasonal declines in its business in other regions.
Huawei also posted a sequential decline (19 percent) due to seasonal slowness in China, but was strongly up year over year (51 percent) due in part to its growing presence in EMEA.
Spending in the North American market shot up 12 percent to just over $1.0 billion, erasing the 4Q06 pullback as the largest buyers, most notably AT&T and its merged or merging entities -- including AT&T Wireless and BellSouth -- and Verizon turned on the spending for the new calendar year.
Vendors with solid positions in these large North American carriers (e.g., the Lucent part of ALU, Siemens, Fujitsu Network Communications, and Tellabs) tended to fare better than average in the quarter, with Fujitsu's North American gains tempered by slow sales in Japan.

Ovum-RHK's ON services combine quarterly analysis and annual forecasts with ongoing commentary and analysis of the global and regional aggregation, bandwidth management, WDM, and Ethernet transport equipment markets.

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