The total worldwide market for optical network equipment is projected to increase from $14 billion this year to $17.25 billion by 2018, a combined annual growth rate (CAGR) of 4.4%, according to the latest market forecast from ACG Research. Overall, the optical networking equipment market is forecast to deliver 10.1% revenue growth in 2013 and experience slow but steady growth over the forecast period – in contrast to the boom or bust cycles for which optical has been historically known. ACG Research says that’s because applications for fiber-optic network technology have expanded across wireline and wireless networks, data centers, and cloud computing, creating constant and ongoing demand.
From a regional perspective, immediate growth will come from network expansions by incumbent carriers in North America and Asia-Pacific (APAC), driven largely by the uptake in wireless 4G/LTE-based services. This build-out should take a couple years to complete and will also expand to the Europe/Middle East/Africa (EMEA) market where it will also fuel revenue growth in the outlying three to five years. The projected five-year growth on a regional basis will be a 5.0% CAGR in EMEA, 4.7% CAGR in the Americas, and 3.7% CAGR in APAC. Based upon revenue generation the ranked order is Americas, APAC, and EMEA.
ACG Research expects the packet-optical transport segment to grow the fastest over the five years at 7.2% CAGR, reaching a $2 billion run rate in 2018. “Although this market segment has not grown as fast as some originally predicted, it has offered new opportunities for vendors to expand their optical portfolio with minimal investment and thus has attracted new entrants,” said Jeff Ogle, analyst with ACG. “This segment has the potential to exceed the forecast as carriers, content service providers, and enterprises transition to an all-IP environment.”
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The legacy product segments of long-haul DWDM, metro DWDM and multi-service provisioning platforms (MSPP) will continue to grow at a CAGR of 4.7%, 4.7%, and 4.0%, respectively. These product segments will account for approximately 85% of the total optical network spend during the next five years, largely due to the relationships or dependencies between the product segments. The metro DWDM and MSPP systems provide the edge devices and customer interface to the optical network. Metro DWDM equipment is usually deployed to support Carrier Ethernet-based business services, while MSPPs support legacy voice data and video service offerings.
The deployment of these edge devices drives the need for the long-haul DWDM platforms to interconnect them, a trend that will not abate within this forecast window, says AGC analysts. Most long-haul DWDM vendors are now shipping 100G interfaces and have announced or demonstrated their roadmap to higher rates. These have been well received and are being deployed at a high rate, demonstrating the advantages of this higher speed interface, the analysts report.
The only product segments forecasted to shrink over the five years are optical cross connects (OXCs) (-6.0% CAGR) and SONET/SDH (-9.1% CAGR), says ACG Research. These product segments are the oldest within the optical networking market and are in the declining phase of their product life cycles. Much of the OXC functionality has been absorbed into the long-haul DWDM and MSPP platforms, eliminating the need for a separate box to accomplish this function.
The majority of carriers have also stopped spending on legacy SONET/SDH gear as they work to transition their networks to an all-IP packet-based environment. Equipment vendors have also added SONET/SDH gateway functionality to their MSPPs to enable carriers to support these legacy systems both internally and for their subscribers. These two segments combined account for only 4% of optical network spend and will drop to approximately 2% by 2018, concludes ACG Research.