Optical networking market hits another six-year high

Alcatel-Lucent exceeds $1 billion in quarterly revenues and outpaces growth of the overall market in 4Q07

For immediate release, 5 March 2008. Ovum RHK today announced its preliminary quarterly results for global optical equipment networking vendors. The global optical networking (ON) market reached a new post-2001 high of $4.4 billion in 4Q07, for a 16% sequential and 30% year-over-year gain. "The blockbuster results for 4Q07, led by Alcatel-Lucent's and Huawei's never-before-seen $1 billion and $800 million revenue postings, respectively, pushed annual spending to $15 billion, which is $300 million over our optimistic expectation," remarks Ovum's VP Optical Networking, Dana Cooperson. "That isn't pocket change, even for Bill Gates."

While numbers can't be finalized until ZTE reports its numbers in late March, trends we've been seeing/discussing over the past several quarters - shifting competitive dynamics due to vendor consolidation; growth in spending across all next-gen product segments that far exceeds declines in legacy gear; and growth in undersea builds - continued through the end of the year.

Spending on next-gen multi-service SDH/SONET gear rose to a new post-bubble high of nearly $1.9 billion for the quarter, propelled by huge sequential spending increases in Asia-Pacific and CALA, versus a new high of $0.9 billion for metro DWDM. "Contrary to popular myth that has Ethernet delivering a swift and decisive death blow to SDH/SONET, a range of applications will continue to exist for SONET/SDH-based devices in evolving networks, particularly as the products themselves evolve to allow more efficient switching, aggregation, and transport of data-based traffic," says Cooperson. "But WDM gear is likewise evolving to be more data friendly and is increasingly claiming the metro core from SDH/SONET as it dominated the backbone ten years ago."

Regional highlights

Spending in EMEA topped all other regions with just over $1.5 billion for the quarter and $5 billion for the year. "We'll be looking at the extent to which currency played a part, but there's still a ton of real growth in that 35% gain over 2006," explains Cooperson. "We expect our subregional analysis to show emerging markets had a largely positive effect on full-year results, and to further identify pockets of highest growth in the market."

Next-gen SDH/SONET spending grew half as much in North America as in EMEA, which made all the difference between the regions. Still spending in North America was up 19% for the year, as DWDM and core switch spending and projected spending growth remain hot.

In Asia-Pacific, the market remains mixed. While ZTE results are not finalized yet, the Asia-Pac region was up at least 10% for the year, despite continued slow sales in Japan. Cooperson says "it appears that once again, China and RoAP are pulling their weight against a continued sluggish Japanese market."

CALA spending growth continues to outstrip other, larger regions. "It's a smaller base," says Cooperson, "but 44% growth in 2007 from 2006 to just over $900 million is nothing to dismiss." Both mobile and broadband traffic growth are driving wireline builds, and vendors report continued growth ahead.

Top ten optical networking vendors

The table shows top ten vendor performance for the quarter. Highlights in order of decreasing strength of 4Q07/2007 growth include:

• Alcatel-Lucent's obliteration of the $1-billion quarterly revenues barrier was the single biggest headline from 4Q07. Alcatel-Lucent grew at least 20% in every region and non-legacy product segment and outstripped the growth of the market for the year, 29% versus 24% for the market.
• Huawei outstripped all expectations for 4Q07 results to post nearly $800 million in revenues, far beyond anything we had seen it do in the past.
• Nokia Siemens Networks' performance would look astounding in any other quarter, and pales in comparison only to Alcatel-Lucent's and Huawei's gravity-defying results. The company was up 28% sequentially and 44% year over year for nearly $900 million in sales in 2007.
• Cisco Systems' quarterly revenues exceeded $200 million to top $700 million for the year. Most of Cisco's growth for the year came from metro WDM sales, and nearly 75% of its ON business remains in North America.
• Nortel didn't match the 4Q07 or 2007 performance of many of its biggest rivals, but the company did grow revenues 5% to $1.2 billion for the year.
• Sales at Ciena, based on its 4Q numbers (August to October), were up 8% sequentially and up 47% over 4Q06, with more and more rivals noting how well it's competing in the marketplace lately. Ciena's sales topped $600 million for the year for 63% growth over 2006.
• The wall Tellabs's cross-connect sales hit in 3Q07 was the single biggest story last quarter. Although sales of its metro WDM product were up in 4Q07, these improvements were not enough to stop revenues from declining 13% from 2006 levels to $804 million.
• NEC's revenues were up 2% sequentially but down 3 percent over 4Q06 as full-year revenues rose 10% to $657 million. Revenues in North America increased nearly 50% for NEC in 2007, while they declined 4% in Asia-Pacific due to continued Japanese market doldrums.
• Ericsson's revenues were flat sequentially but up 9% over 4Q06 and 15% over 2006 levels, topping $800 million for 2007.
• Fujitsu's revenues tumbled 20% sequentially and 8% over 4Q06 to decline 2% for the year to $880 million as its North American customers transitioned from SONET to DWDM and stagnation continued in Japan.

Table 1 Global ON market shares for top ten vendors

Vendor	4Q07 market share	3Q07 market share	Change from previous	Rolling 4Q share	Change from previous
Alcatel-Lucent	25.3%	24.9%	0.4%	23.5%	0.6%
Ciena	4.0%	4.3%	-0.3%	4.1%	0.1%
Cisco	4.6%	4.7%	-0.1%	4.9%	-0.1%
Ericsson	4.8%	5.6%	-0.8%	5.4%	-0.3%
Fujitsu	4.5%	6.6%	-2.0%	5.9%	-0.6%
Huawei	18.1%	13.2%	4.8%	14.4%	1.6%
NEC	4.0%	4.5%	-0.5%	4.4%	-0.4%
Nokia Siemens	5.8%	5.2%	0.6%	5.8%	0.1%
Nortel	7.6%	8.0%	-0.5%	7.9%	-0.6%
Tellabs	3.8%	4.1%	-0.3%	5.4%	-0.6%
Top ten	82.5%	81.2%	1.3%	81.8%	0.0%
Others	17.5%	18.8%	-1.3%	18.2%	0.0%

Source: Ovum RHK

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For further information:

For more information or to speak with Dana Cooperson about this research, please contact Sara Kaufman, Public Relations, sara.kaufman@ovum.com, 617 722 4602 or a member of our global PR team listed below.

About Ovum RHK:

Ovum RHK provides market research advisory services to telecom equipment and component vendors and service providers alike. Ovum RHK is a part of Ovum, advising on the commercial impact of technology and market changes in telecoms, with offices in London, Paris, Cologne, Boston, Melbourne, Seoul and San Jose.

About Ovum:

Ovum's primary activity is providing value-added advisory services and consulting to retained and project clients. The company acts as a well-respected and trusted source of industry data, knowledge and expertise on the commercial impact of technology, regulatory and market changes. Ovum engages in continuous research and industry analysis to determine market dynamics in its specialist sectors.

Ovum has developed long-standing relationships with many of its corporate clients, which include major international blue-chip companies such as Alcatel-Lucent, AT&T, BT, Cable & Wireless, Cisco Systems, Deutsche Telekom, Fujitsu, HP, IBM, Microsoft, Telstra and Vodafone.

Ovum is part of the Datamonitor Group.

Ovum's PR contacts:

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