Fibre-optic components slide seen as a return to normality

It would appear that the fibre-optic components industry was not so long ago riding high with no chance of losing altitude. Pegged as one of the hottest markets by analysts over the last two years, the industry experienced impressive revenue growth rates of over 80 per cent in 1999 and 2000.

However, this year, that rate has dropped considerably to an estimated 25 per cent, according to Yankee Group Analyst Jay Patel.

Though the fall in the growth rate of the fibre-optic components industry seems dramatic, Patel assures that it is not.

“The past two years have been quite unusual,” Patel explained. “(The growth rate) wasn’t sustainable to begin with.”

In a report conducted for the Yankee Group, the industry is projected to grow from US$10.7 billion in 2000 to US$32.9 billion by 2005, at the compounded annual growth rate of about 25 per cent. Patel stated that “after it’s ‘bursty’ demand nature of growth during 1999 and 2000, it was only inevitable that it needed to come down to this.”

Patel attributes the bursty growth to the “huge capital expenditure increases by carriers in the last few years due to excessive optimism of Wall Street investors.”

Patel said that the latest low projections for the industry may come as a surprise to leading players like Corning, JDS Uniphase, Lucent and Nortel. He said that some companies got carried away because of the 80 per cent growth rate over the last two years, and although it is unlikely they expected that growth to occur again, they did likely expect a growth rate of at least 40 per cent.

“Twenty-five to 30 per cent growth does look like a major slowdown, but on the other hand, it is a very healthy growth,” Patel said.

He said that, nevertheless, the optical domain is expanding, primarily from the combination of two factors: the demand side from the broadband access of Internet traffic, and the expansion of the optical domain itself, which increases the need for the components.

Carol Stephenson, CEO of Lucent Technologies Canada, said that her company sees the market as being at a healthy standpoint. She said that Lucent depends on the carrier industry and in turn the fibre-optic components industry depends on companies like Lucent to keep building out optical networks. She added that the fall in the growth rate for the fibre-optic components industry will have little affect on Lucent’s development in the optical arena.

Patel said that for the most part, companies are doing a good job of anticipating demand.

“If you take a look at Corning, they are expecting to increase the capacity for fibre by about 30 per cent, which is a reasonable range,” he said. “We expect the fibre volume to grow by 25 to 30 per cent. Unless things get really bad out there in terms of the economy, I don’t think we’ll be seeing any more surprises.”

Patel concluded that although the predicted growth rate is not nearly as impressive as the last two years, it still represents a healthy growth.

“To me it is back to normal,” he said. “It was not normal in the last two years.”