Optical network hardware revenue down 12% in 1Q06;Alcatel down 43%

Infonetics: worldwide optical network hardware revenue dropped 12% to $2.6 billion between 4Q05 and 1Q06 as a direct result of the 43% revenue hit market leader Alcatel took.

Alcatel’s optical revenue was down in the first quarter, as it usually is, but their overall growth continues: revenue is up 10% in 1Q06 over 1Q05, while worldwide optical hardware is up only 8% in same period.

Annual optical network hardware revenue is forecast to increase 14% to $12.3 billion between 2005 and 2009, with the strongest growth coming from metro WDM optical equipment. While most categories within the optical network hardware market were down in the first quarter, metro WDM ROADMs bucked the trend with a big 28% gain, as more manufacturers have rolled out ROADM-enabled gear.

The optical market is more cyclical than most, and Alcatel’s optical sales are more cyclical than any other company I’ve seen; a big fourth quarter followed by a low first quarter is the usual pattern here.

We upgraded our long haul WDM forecast because growth has picked up steam (27% gain between 1Q05 and 1Q06),Howard continued. A lot of carriers haven’t invested much in long haul since before the telecom bubble burst. Now that their equipment is old and the new equipment is vastly improved, the business case to invest again is compelling. The new long haul WDM equipment offers more automation using less space and less power. Everything about it is more efficient. So with network traffic growing unabated and many routes already at capacity, carriers are looking to upgrade with new gear that offers operational savings. This will drive strong growth in long haul WDM through 2009, when it will reach $2.1 billion.

1Q06 Highlights

• Metro makes up 69% of all optical network hardware revenue; long haul makes up 31%

• Healthy metro spending will continue due to increased corporate network traffic, storage networking, consumer broadband demands for services such as IPTV, and service provider wireless network backhaul investments

• WDM hardware makes up 32% of total optical revenue; WDM ROADM switch hardware makes up 26% of total WDM revenue, and will increase significantly over the next few years

• Alcatel continues its strong lead in worldwide optical network hardware revenue share, followed by Nortel, Lucent, and Huawei

• While many manufacturers had down quarters, some had up quarters, including Adva, ECI, Ericsson (by acquiring Marconi), Fujitsu, Lucent, and Tellabs

Optical Network Hardware

Publ 20060530