LightTrends Newsletter

Many records set in Q4 2021 despite supply issues

March 2022

LightCounting publishes its Quarterly Market Update for 4Q21

Nearly all companies’ earnings reports for Q4 2021 are now complete, and it’s clear that the industry continued to benefit from surging demand in internet services and related equipment and components, though some were materially affected by supply issues.

Top Internet Content Providers (ICPs) continued to rack up impressive gains in revenues in the fourth quarter of 2021, with the top 15 total setting a new record of $561 billion. Even more impressive is the fact that every company in our Top 15 list set individual sales records, with the exception of VIPShop. ICP spending growth was a bit more subdued, down 8% versus the record set in Q3 2021, although Amazon, Baidu, Meta, Oracle, Netease, Tencent, and VIPShop all reported new highs.

CSPs as a group saw revenues decline by 1.8% in Q4 2021 compared to Q4 2020, in spite of new records posted by China Unicom, Comcast, and Deutsche Telekom. Annual revenues grew 6%, led by the three Chinese CSPs, Comcast, and Deutsche Telekom. In terms of capital expenditures, China Telecom, Telecom Italia, and Verizon spent more than ever before in Q4 2021, and in absolute terms Q4 was the highest since Q4 2016. For the year, capex in 2021 was $183 billion, 7.8% higher than in 2020, and a new record.

Network equipment maker sales fell short of a record for the group, though ADVA, Ericsson, and Infinera all reported new record revenues. Infinera appears to be finally reaping the rewards of its investment in its ICE6 optical engine development. Ciena uncharacteristically had a disappointing quarter, saying its ability to ship products was hurt by supply and contract manufacturing woes.

Among datacom equipment vendors, only Arista, H3C, and Inspur reported record sales, although the Top 14 total was also a new record, growing 8.4% compared to 4Q 2020 and 7.8% higher than Q3 2021.

Similarly, semiconductor makers as a group reported a record $45.5 billion in sales, up 30% year-over-year. Of the 20 companies in this group, every one set a new sales record, except for MACOM and Semtech (the two smallest). A cynic might suggest that semiconductor makers are taking advantage of the supply/demand imbalance by holding or raising prices.

Optical components vendors as a group had the best quarter of 2021 in Q4, topping $2.5 billion for only the fourth time, 2% lower than Q4 2020, and slightly below the high-water marks set in Q2, Q3 and Q4 2020. Individually, only Broadex, CIG, and Innolight reached new highs. Despite this, shipments of optical transceivers did set a new record, according to our recently completed vendor survey, and exceeding $2 billion per quarter for the very first time. Revenues grew 37% overall, with Ethernet and WDM segment growth in the mid-to-high 40% range.

Part of the reason for record transceiver vendor sales is that average prices increased in 2021 in some important categories. Ethernet and WDM are the largest segments in terms of sales and saw sales growth of 28% and 27% respectively in 2021 compared to 2020. Ethernet units increased by 11% and average prices by 21%; WDM units declined 12% while prices increased 37%.  In both segments, product mix is shifting from lower performance to higher performance products, which raises the average price, and supply shortages may have allowed vendors to resist the normal 10-15% annual price declines in some cases.

More competitive, high-volume segments – wireless and FTTx – actually saw greater price declines in 2021 than in 2020. Again, product mix changes played a role. Wireless had fewer 25G devices shipped in 2021, and 10G PON had a higher ratio of ONU/ONTs to OLTs.

Based on discussions at OFC, and comments from earnings calls, it’s clear that most in the industry believe supply issues will last into 2023. With possible future shortages of neon gas (made in Ukraine), and palladium (mined in Russia) being talked about, not to mention rising interest rates, inflation, and a very uncertain end to the COVID-19 pandemic, the road ahead certainly looks bumpier than ever. As time goes on however, companies are becoming more adept at managing the impacts of these multiple challenges, and eight of nine companies whose guidance we track said sales would grow year-over-year in Q1 2022. Lumentum was the outlier, guiding for a 7% decline in sales compared to Q1 2021, due to supply shortage impacts totaling $65 million.

LightCounting’s Quarterly Market Update (QMU) is a detailed analysis of the most recent quarter reported by companies in the optical communications industry. It consists of a PowerPoint slide deck and Excel workbook with quarterly sales for many companies in the industry, including CSPs, ICPs, network equipment markers, and optical and semiconductor components vendors. The QMU also contains the latest results of LightCounting’s proprietary optical transceiver vendor shipment survey, with units, prices, and revenues of more than 150 transceiver product types.

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