Putting an exclamation mark on market figures Infonetics Research announced last week (see "Infonetics: Optical network spending slips 23% in 1Q12"), Ovum says that optical network (ON) hardware sales in the first quarter of 2012 showed a year-over-year decline of 9%. This is the first such year-on-year decline for the space in almost two years, says Ovum in its recently released Market Share Alert: 1Q12 Global ON.
In addition to the year-ago declines, annualized spending on optical network gear shrank by $300 million (about 2%) sequentially, Ovum says. This retreat is equal to a third of the gains the segment saw all of last year, according to the market research firm.
Sales slipped globally, with declines particularly acute in Europe, the Middle East, and Africa (EMEA). That region saw a year-over-year reduction of 15%.
Ovum analysts believe companies and investors should not be heading for the exits yet, however. “Preliminary results for 1Q12 indicate more a cause for concern than a cause for panic,” says Dana Cooperson, practice leader of Ovum’s Network Infrastructure practice. “While 1Q sales are typically lower than 4Q sales, actual spending last year overshot our $14.9 billion forecast when results in Asia-Pacific and Europe were less negative than we predicted.”
However, that expected weakness may have just been delayed until 1Q12, Ovum theorizes, particularly in light of the weak European economy. “Also 4Q/1Q market seasonality is becoming more pronounced as spending and spending growth shifts to Asia-Pacific and South and Central America, in which case sales should rebound more than is typical in 2Q12,” comments Cooperson.
In fact, Cooperson and Ovum continue to believe that the space overall will grow 4% in 2012, ringing up $16.2 billion.
The first-quarter slump hit market leaders Huawei and Alcatel-Lucent particularly hard. Huawei saw its worst quarterly revenue figures since 3Q07, while Alcatel-Lucent reached a low point it hadn’t seen since 2005, Ovum asserts. Nevertheless, not every company suffered during the first three months of the year. NEC saw strong sales in its home market, rising 0.4 share points; its quarterly WDM sales were the strongest in its history. Cisco saw strong year-over-year revenue growth in North America, Asia-Pacific (specifically Japan), and South and Central America. And even Huawei's cloud had a silver lining, in that its year-over-year results beat the quarterly market average globally and in EMEA. Thus, Huawei still managed to increase its market share.
Data center interconnect has emerged as a key driver of growth and for use of 100G, control plane, and encryption features, the report adds. “However, mobile backhaul remains a ubiquitous growth driver at the network edge, with vendors noting the increasing speed of evolution from SONET/SDH to Ethernet/MPLS for aggregation and transport. As 100G deployments grow, 40G deployments are holding steady,” Cooperson adds.