Smarter, if not taller

The optical hardware market may not be growing but it is getting smarter.

Two research firms say the market will languish for the next few years. In long-haul, revenue will decrease by 50% this year from last and remain relatively flat until about 2007, according to Probe Research. A slight improvement may occur in 2004 but not enough to reach 2001 revenue levels, when long-haul accounted for 51% of the total optical market, Probe says.

The total market in the third quarter was $2.26 billion, down 14% from last quarter, according to Infonetics Research. Infonetics says that after declines in 2003 and 2004, worldwide revenue is projected to be slightly up in 2005.

The market will be propped up by metro optical systems, Infonetics claims, which comprised 64% of optical hardware sales in the third quarter. Within that, intelligent metro systems – which at $1.6 billion in the third quarter accounted for 69% of metro optical revenue and 72% of all optical hardware revenue – will experience the most growth going forward, the firm claims.

Infonetics defines intelligent optical gear as data-aware equipment with remote configuration and remote service provisioning that can be deployed in mesh, star and ring topologies for rapid buildout and revamp.

While the total metro market is down 8% in the third quarter, intelligent metro is down only 5%, according to Infonetics. SONET/SDH continues to outpace WDM sales by a more than two-to-one ratio, representing 70% of total spending in the third quarter, while WDM is 29% and PON 1%, the firm states.

But Infonetics expects a 7% year-to-year growth in intelligent metro optical revenue between 2002 and 2003 – from $4.1 billion to $4.4 billion – while revenue in most optical categories will decline in the next year.

The total optical market will decline 12% in 2003 from 2002, from $10.2 billion to $9.0 billion, according to Infonetics.

Why all the interest in intelligent metro? Both Infonetics and Probe say that the long-haul optical networks of carriers are built out or even overbuilt due to unrealistic projections in the growth of IP traffic. Also, Probe notes that several large long haul carriers are bankrupt and/or financially unstable.

This will lead to consolidation in both the carrier and optical equipment vendors ranks, Probe says. Other factors affecting long-haul optical as well as the industry as a whole are investor distrust in telecom service providers and their equipment vendors due to questionable accounting practices; and carrier inability to offer profitable new data services.