Technical Insight
The evolving market for optical components (Cover Story)
The current slowdown in the optical components market could signal a period of industry consolidation, but there are still plenty of opportunities on the leading edge of performance and cost reduction, says John Lively, director of optical components research at RHK Inc.
Although the optical components market has seen explosive growth in recent years, a dramatic slowdown hit the market starting in the first quarter of 2001. A report published in May 2001 by RHK s optical components research team forecasts that demand for optical components for DWDM networks (including active and passive devices) will decline by roughly 10% this year versus 2000 revenues, and 2001 revenues will total only $4.5 billion this year. The report identifies the reasons for the decline as over-purchasing of critical components in 2000 (which led to a build up of excess inventory), and a slowdown in 2001 spending on DWDM long-haul networks by North American carriers. Long-term evolution A key question now facing the optical components industry, however, is how it will evolve in the long term. The recent RHK study predicts that the most likely future is that market demand will return to positive growth starting in 2002, with growth rates in the range of 2535% in 20032004. But what will happen to the composition of the industry during this transition from "hypergrowth" to more "normal" growth? Looking at how other industries have evolved is one way to see what could happen in the optical components industry. A comparison with the personal computer (PC) industry would suggest that the optical components industry is headed for a period of industry shakeout and consolidation, while a comparison with the aircraft industry suggests the status quo may prevail for some time to come. Before attempting to predict where the optical components market is head-ing, it is instructive to examine just what the market consists of and how the market has reached its current state. Semiconductor-based optical components can be roughly divided into three major application segments:
- DWDM optical transport: this has been the fastest growing market segment in recent years, and products in this group include source lasers, photodiode receivers, and pump lasers.
- SONET/SDH optical transport: as with DWDM, this technology also requires source lasers and detectors.
- Core and edge IP routers: these also require source lasers and receivers, which are typically packaged as transceivers or transponders.