profitability of optical component suppliers - cioe 2012

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Profitability of the optical component

suppliers (or lack of it)

Dr. Vladimir Kozlov LightCounting, LLC September 2012

10/30/2012 1


About LightCounting

10/30/2012 2

• LightCounting reports and service products are designed to help executives plan and run their businesses. We support decision making based on facts and data.

• Our research covers the entire supply chain including components, modules, and networking equipment suppliers, service and content providers.

Products and Services • Market Update and Forecast

Reports • Quarterly and Annual sales

databases • Focus reports on

• 40/100G interconnects • AOCs • 10GBASE-T

• Continuous Information service • Consulting projects


The Industry Supply Chain

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Pro

du

cts

and

Ser

vice

s

Cas

h f

low


Is this Industry Profitable?

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Average Annual Net Margin = (net profit/ total revenue)

Content Providers and Communication Semiconductor Suppliers (IC Vendors) are the most profitable … on average

Optical component and module vendors are only profitable when the demand

exceeds supply

Companies 2008 2009 2010 2011

Content Providers 12% 16% 16% 14%

Service Providers 6% 10% 12% 8%

System Vendors 5% 5% 8% 6%

IC Vendors 10% 9% 22% 20%

OC and Module Vendors 2% -4% 3% -1%

State of the Industry Report: http://www.lightcounting.com/2012_SOTIR.cfm

http://www.lightcounting.com/2012_SOTIR.cfm

http://www.lightcounting.com/2012_SOTIR.cfm


Optical Component and Modules suppliers are mostly in the red

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OC Vendors 2008 2009 2010 2011

Accelink 16% 13%

Emcore –12% –23% –8% –24%

Finisar 6% 4% 10% 4%

JDSU 6% 1% 1% 2%

NeoPhotonics 2% –8%

Oclaro 1% –3% –12% –21%

O-Net 28% 20%

Oplink 7% 12% 12% 19%

Opnext 1% –15% –17% –16%

Average 2% –4% 3% –1%

Annual Net Margin

- Emcore sold VCSEL business to Sumitomo

- NeoPhotonics received investments from Rusnano

- Oclaro and Opnext merged

- O-Net and Oplink have the highest margins


Investors had very high expectations from the optical technology

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Would you like to come to a

party with us?


Who is controlling the market?

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• MSAs • Price mark-ups

• 10G optics • AOCs

• Vertical Integration • Aggressive pricing

• Low cost datacenters • 100G interconnects


What is the problem with optics?

• Is this industry too young? (90% of business in photonics have less than 100 employees)

• Are the customers too powerful?

• Is the technology hard to scale?

• Too many competitors?

• Too many vendors offering contract manufacturing services?

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Strategies for success

• Scale and diversification (Finisar, Oclaro)

• Unique capabilities (very few, Infinera?)

• Intellectual property protection (Avago/Emcore,

Finisar/Source Photonics)

• Manufacturing excellence (Contract Manufacturers)

• Innovation (very long term strategy)

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Consolidation is very slow

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0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2004 2005 2006 2007 2008 2009 2010 2011 2012

Top 3

Top 4-6

Top 7-10

Rest

Market shares of optical transceiver vendors


Diversification of optical transceiver vendors

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Generalists Specialists


Revenues of top ten Chinese vendors

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$0

$200

$400

$600

$800

$1,000

2006 2007 2008 2009 2010 2011

Tota

l Re

ven

ue

($

M)

Data accounts for sales of the following vendors: Accelink, Eoptolink, Gigalight, HG Genuine, Hi-Optel, Hi-Sense (HBMT), O-Net, Sunstar, WTD, and Wuxi-ZTE.


How does the future look like?

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You never know


Datacenter Cabling in the “Marketing” Brochures

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The Yellow Wall

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Ethernet transceiver market

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$-

$100

$200

$300

$400

$500

$600

$700

$800

$900

2008 2009 2010 2011 2012 2013 2014 2015 2016

Sale

s ($

M) 1 GigE

10 GigE

40 GigE

100 GigE


Bandwidth distribution

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Customer Premises Network

Core Network

Net

wo

rk B

and

wid

th

1 Mbps

20 Mbps 1 Tbps

10 Tbps

“To move up the value chain of profitable services, provider must deploy ample network bandwidth, end to end” Leping Wei, China Telecom


Distribution of aggregated bandwidth

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Customer Premises Network

Core Network

Agg

rega

ted

Net

wo

rk B

and

wid

th

1-20 Mbps x number of customers

1 - 10 Tbps x Number of fiber lines

Major upgrades will be necessary. This will be a major opportunity for suppliers


Telecom transceiver market

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$-

$200

$400

$600

$800

$1,000

$1,200

2008 2009 2010 2011 2012 2013 2014 2015 2016

Sale

s ($

M)

SONET/SDH CWDM / DWDM FTTx Wireless Infrastructure


Thank you

www.lightcounting.com

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http://www.lightcounting.com/

profitability of optical component suppliers - cioe 2012

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