ELLEN MANNING MONEY IN THE MARKET
We expect that to help improve the pricing environment and we expect over time the environment to get a little better and that will help growth in the market. But Europe and North America are probably going to still be in mid-single digits, just because they’re going to keep pressure on the price.
equipment and carriers unable to go elsewhere. While he has not seen growth to offset that problem for the quarter, the situation could lead to an upswing in Q3, says Frey, with any longer-term effect yet to be seen. In Q3, a similar situation arose in Australia, where the government effectively banned Huawei and ZTE from participating in that country’s 5G roll-out plan. In a joint statement, acting home affairs minister Scott Morrison and communications minister Mitch Fifield said suppliers would be ruled out unless they can “adequately protect a 5G network from unauthorised access or interference”. Again, this could mean growth for other vendors at the expense of the Chinese companies. Given that the ramifications of such event take time to filter through to the market however, it could be some time before the full implications are clear. UNSTABLE GROWTH The surprising part of the latest results is that the market hasn’t stabilised sooner, says Frey. “We expected it to stabilise last year and it didn’t. Our port counts were about right but the price or revenue was lower than we expected in Europe and in North America”, giving one reason for the pricing pressures applied by buyers and cloud data centres that is impacting the market. “Some of the buyers, like the cloud data centres, they apply a lot of pricing pressure, so that also seems to be impacting the market. They are buying a lot of ports and they don’t want to pay a lot for their optics.” Consolidation within the industry may help improve the pricing environment, says Frey. So far, the sector has seen Lumentum’s acquisition of Oclaro for US$1.8 billion, announced in March 2018, and Infinera announced its plans to buy Coriant at the same time as announcing its ‘strong’ Q2 results. There could be more mergers and acquisitions, says Frey, adding, “We expect that to help improve the pricing environment and we expect over time the environment to get a little better and that will help growth in the market. But Europe and North America
are probably going to still be in mid- single digits, just because they’re going to keep pressure on the price.”
million in Q1. That figure was down 14.2% from 144.2 million in the same period in 2017 but net profit for the quarter was EUR 4.6 million compared with EUR 4.5 million in the same period the previous year. CEO Brian Protiva said they expect continued positive business development in the second half of the year and the company predicted revenues of EUR 123-133 million for Q3. REGIONAL GROWTH But while fibre has prompted growth within the industry, that growth has been driven by certain regions, says Frey. While growth hasn’t been particularly strong in the last year in North America and Europe, China and India have demonstrated double-digit growth. In its report, Pune, India-based Market Research Future noted that while Europe will continue to grow, it is markets like China, Japan and India that show the highest growth. “The fibre optic market in Europe region is expected to witness rapid growth in the forthcoming period,” it says. “Whereas, countries such as China, Japan, and India are emerging markets for fibre optics [and are] expected to show the highest CAGR in the coming years.” Similarly, US-based Grand View Research says, “In 2015, the North American region dominated the global fibre optics market with a market share of 31.1%. Moreover, the increasing application of fibre optics in the medical sector is also catapulting growth across countries such as China, Japan, and India, thus propelling the overall fibre optics market to grow at a significant rate.” While there has been some investment in North America, competition and price erosion have kept a lid on revenue growth, says Frey. “So, the bandwidth’s growing, it’s driving new ports or more high-speed optics which is helping component companies. For the system companies in the middle however, unless they’re growing share, the market is fairly flat.” One issue specific to Q2 in 2018 was the US government’s ban on ZTE which saw the company unable to supply
5G: THE BIG DRIVER A main driver of growth when it
comes to the future of the industry is, unsurprisingly, 5G. Work carried out by Frey suggests that 5G could take growth from the 2.7% forecasted up to 2022 up to around 6%. “When we looked at what 5G’s impact would be we believe it should be around 6%, so 5G’s impact on metro and backbone will move the needle about three points in growth which is significant - it’s a couple of billion. If you think about carriers’ investment, fibre is the clear investment they need to make now for 5G. How these technologies evolve and which work best for 5G they can delay a little bit longer. That’s why I say in 2019 they probably can’t delay too much longer, they have to start making some investment, but in 2020 it starts to really ramp up.” Stabilisation and the arrival of 5G driving higher bandwidth are both likely to bring positive growth for the industry, but these won’t necessarily become clear until 2020 or 2021, says Frey. But it will be then that we see a “bigger life in the forecast”. Equally, Grand View Research anticipates that the global fibre optics market will see “substantial growth” over its forecast period up to 2025. “The global fibre optics market is anticipated to witness a substantial growth over the forecast period,” the report says. “The high demand for optical communication and sensing applications for diverse purposes provides avenues for industry growth. Furthermore, the growing demand for cost-effective, power- efficient and high-level integration of IT infrastructure is expected to impel market demand in the next few years.” But it clearly won’t all be plain sailing, the
report seems to suggest, adding, “However, factors such as capital
investment, used in the development of the new fabrication technologies, may pose a challenge to the market demand over the forecast period.”
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| ISSUE 14 | Q3 2018
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