LightTrends Newsletter

LightCounting’s summary and analysis of Q3 2021 results was published today in its December 2021 Quarterly Market Update.

The figure below illustrates Q3 2021 financial results across the industry supply chain in comparison with the same quarter of last year. The datacom side of the industry saw growth from top to bottom, while on the telecom side, growth in CSP capex and telecom network equipment did not carry over to the telecom components segment. For component vendors, beating Q3 2020 was difficult since it was such a strong quarter for component sales last year. We expect to see higher y-o-y growth rates for components in Q4 2021.


Notable results for the quarter included:

• ICP Top 15 capex hit another record high, with year-over-year growth of 34%, and datacom equipment revenues grew 9.6%, the fastest rate since Q3 2018. Facebook changed its name to Meta, and announced a 66% increase in capex for 2022.
• In optical networking, Ciena had record high sales, of more than $1 billion for the first time, growing 26% y-o-y while the Top 15 NEMs collectively grew only 2%.
• Despite continued problems in smartphone sales, Huawei’s optical business is down, but in terms of DWDM port shipments on par with 2020. Lack on new projects is the most likely reason for the discrepancy between sales and port shipments.
• The semiconductor segment extended its streak of double-digit sales growth to seven quarters, with 12 of 14 companies solidly double-digits ahead of last year.
• Despite all the above, 3Q21 component vendor company revenues in aggregate were 12% lower than in Q3 2020, but flat compared to Q2 2021. On the bright side, Broadex, HiSense, Innolight, Lumentum, and Neophotonics all reported Q3 sales higher than Q2 2021.
• Optical transceiver sales were flat versus Q3 2020, but up 7% sequentially. We expect more growth in Q4 2021. Sales of 400ZR/ZR+ will return the telecom components market to positive territory.
• IC shortages, shipping delays and surcharges continued to impact supplier revenues in the quarter.
• Lumentum’s acquisition of Neophotonics was announced in November 2021, and the ADVA-Adtran merger remains on track to close mid-2022.

Ten of eleven companies guided for higher sales in Q4 2021 than in Q4 2020, with Lumentum being the exception. And we expect to see strong growth in optical transceivers in Q4 2021 as well.  The outlook for 2022 is a volatile mix of positive and negative factors, however. Demand remains strong in most segments, and the pace of product innovation and commercialization continues unabated. Yet component supply shortages and shipping issues continue to restrain companies from taking full advantage, and could lead to excess inventories down the road. The money-printing ICPs face growing regulatory threats which could dampen spending, in spite of Meta’s planned increase, and 5G deployment continues on something of a slow burn. The overheated macro-economy is also showing signs of strain, with inflation starting to look more than transitory, and major debt defaults in China now a reality. Thus, we head into 2022 with both heightened opportunity and uncertainty, which will challenge every vendor in the communications industry.

LightCounting’s Quarterly Market Update is published as PowerPoint slides with an accompanying Excel database, for easy client access to charts and data.