The Market for Optical Network Components
- The total global market for optical network processing unit purchases was worth more than $2.1 billion in 2005 and over $2.2 billion in 2006. At a compound annual growth rate (CAGR) of 3.5%, this market will reach almost $2.7 billion by 2011.
- NPU optical network components have the greatest growth potential through the forecast period. In 2006 these component purchases totaled $355 million and at a CAGR of 5.4% will grow to $461 million by 2011.
- Backplane optical network component purchases held the highest share of the market through the forecast period. In 2006 these purchases totaled $952 million; over 42% of the market. By 2011 the value will grow to more than $1.1 billion, maintaining its 42% market share.
The Information Age has clearly arrived. Increasingly, businesses and consumers communicate in real time. No longer are there any delays when individuals need to pick up messages at home or the office. Information travels quickly from the source to multiple destinations, whether it is a living room, a branch office, an automobile, or a combat unit in the Middle East. Networks have made it possible for companies and individuals to communicate so effectively. They have become faster, less expensive, and simpler to deploy. Businesses and individuals have developed new applications to take advantage of high-speed, multimedia-friendly transmissions. Not only are users able to speak to one another in real time, but they are also able to instantly exchange information from simple items like a weather report or a sports score to complex files and images. Equipment vendors are integrating networking components into a wide range of products. They have branched out from PCs and now include them in IP phones, PDAs (personal digital assistants), and laptop computers. These benefits are starting to be enhanced so that inanimate objects like a soft drink machine or a station on an assembly line can communicate in real time as well. In sum, just about every type of device is being connected to business and consumer networks.
Behind these new networking advances is an ever expanding array of semiconductors. Advances in wafer and silicon technology have enabled chip manufacturers to squeeze complex functions onto smaller and smaller spaces. They have also been able to put more and more functionality into these chips. As a result, network chips continue to be an area of prime interest for semiconductor suppliers. Because these new semiconductors offer users a number of benefits-more functionality, simpler deployment, and support for higher speeds-demand for them from network equipment suppliers has been rising.
This report will examine the silicon used to connect an ever growing array of devices, from complex servers to next-generation phones, to telecommunications networks. After defining the different market factors (the impact of wireless networking, the growth of the Internet, the use of Network Processing Units (NPUs), the importance of Multiprotocol Label Switching (MPLS), and the significance of future network growth), the report analyzes and forecasts market trends in each segment of the optical semiconductor market, delineates technology trends, and identifies market leaders. Long-term economic, business, and other macro issues raised by these trends are also analyzed.
The report outlines immediate and long-term commercial opportunities for vendors interested in delivering network semiconductors. Key product segments covered include spending on NPU, System on a Chip (SOC), backplane, and transceivers at a variety of speeds from 52M bps to 10G gigabits per second. In addition, the report examines the factors fueling the growing opportunity in these market segments and features a comprehensive look at emerging developments that may impact the optical network component market.
The text includes crisp explanations of the various technologies used in optical networks, easy-to-follow discussions about the level of maturity of the different technologies, and descriptions of the steps that need to be taken so that use of these products and their associated services can become more common. By incorporating data about past purchases, examining new user requirements, and including the perspectives of key industry insiders, sales forecasts and projections are made through the year 2011. The projections include the number of individuals using the services, revenues generated by them, and anticipated growth rates for products supporting a variety of transmission speeds.
SCOPE OF STUDY
The scope of this report is broad, and contains:
- An overview of the global optical network components market, with historic and emerging business usage trends, market demographics, government regulatory issues, and expenditures for technology, products, and applications.
- Detailed market forecasts for various applications, including NPU optical network components, SOC optical network components, transceiver network components, and backplane network components, with compound annual growth rates and five-year projections through 2011
- An important technology review that discusses critical developments and potential trends in the upcoming market, as well as a detailed analysis of patents over the past few decades
- Company profiles and detailed background information for all the major players in the industry.
METHODOLOGY AND INFORMATION SOURCES
Preparation of this report involved in-depth study and critical analysis of published data from a wide variety of world economic agencies, U.S. government, and private company sources. Industry projections have been made by BCC based on original studies of economic, social, and demographic information, as well as on critical examination of projections by industry analysts and those found in public sources. Information included in the report comes from primary BCC research, input from key suppliers in the various market segments, and reports from organizations such as the U.S. Department of Commerce, The World Trade Organization, the 10G Ethernet Alliance, the Wi-Fi Alliance, the Institute of Electrical and Electronic Engineers, and the Internet Engineering Task Force. The projections are based on anticipated growth in the current base of network users, the emergence of new optical market sectors, movement among existing network users from low speed to higher speed options, the availability of new networking options throughout the world, and a push by suppliers to wire more devices in the home as well in business.
Another factor is the never-ending improvement in silicon design. When new network components are first shipped, they sell at their highest price. Typically, pricing erodes from 5% to 20% per year depending on how long the components have been shipping. The higher price drops are associated with newer technology and vendors can make up for lower pricing by increasing volume. The lower end of the spectrum occurs with mature products; here vendors need to squeeze out costs by reducing expenses or improving production.
Since segments of the market such as lower-speed optical connections are mature and stable, vendors have been examining new ways to leverage their technology. Markets such as home networking offer them those opportunities. The need for higher speed network options corresponds to the never-ending delivery of faster, more powerful computer systems. As companies and individuals take advantage of these advances, they find that their network connections slow down data transmissions, which reduces productivity. Consequently, they are looking to upgrade to faster networking options. Vendors have shipped more than billions of wired connections and hundreds of millions of wireless connections. Software suppliers are delivering products that enable users to work with larger, more complex applications such as voice and video. Consequently, the volume of data transmitted over telecommunications continues to rise. Carriers need more bandwidth as well as more flexible network equipment in order to support their services. The ongoing migration from lower speed to higher speed connections provides optical network component suppliers with a recurring revenue stream. In addition, lower product pricing stemming from increased competition among suppliers has been expanding the market, so more businesses, OEMs, and consumers can now afford additional network solutions.
The market for optical network silicon will be healthy in emerging market segments such as 10G bps silicon and some of the potential revenue increases that vendors would like to reap will be offset by declining prices stemming from intense competition. Silicon vendors have been lowering the price of their products by streamlining manufacturing processes, moving facilities to inexpensive labor markets such as China, and improving the design process. The revenue projections are based on a continued worldwide growth in consumer and business spending of 2%, which translates into expansion of numerous product categories, including the use of networking products. One item of caution, the projections could be lower if the world economy slips into a recession or a depression, events that are possible given the volatility in areas such as the Middle East.
Paul Korzeniowski has been writing about information technology (IT) issues for more than two decades. His work has appeared in a number of publications, including Investors Business Daily, Network World, and Information Week. His articles have discussed all types of computer, network, and software products and services from mainframes to handhelds, enterprise resource planning (ERP) systems to collaboration tools, and dial-up links to optical transmission systems. In addition, he has worked for a number of vendors and has produced white papers, case studies, and market research studies.