LightTrends Newsletter

Mixed financial results cannot hide clear signs of an industry-wide slowdown

March 2023

LightCounting releases Q1 2023 Market Update Report

Ciena, Infinera, Nokia and several other suppliers of optical networking equipment reported strong growth in Q4 sales and offered a solid guidance for early 2023. Yet, Q4 results reported by suppliers of optical transceivers were flat or down, after strong growth in Q2 and Q3 2022, illustrated in the figure below.

Is this a fluctuation or the first sign of a slowdown? Unfortunately, it is the latter. Telecom service providers and Cloud companies are cutting their spending. Demand for lasers and IC chips fell sharply in Q3. The optical transceivers market posted a decline one quarter later.

Rosy financials reported by equipment suppliers come from record order backlogs accumulated over the last two years due to shortages across the supply chain. These backlogs will not last for much longer, probably 2-3 quarters at most.

It is not all doom and gloom, however.

The demand for FTTx optics exceeded our expectations in 2022 and we expect this segment to remain steady this year. Governments around the world are investing in wireline broadband, an essential element of the digital economies of the future.

Investments into AI infrastructure are also expected to remain strong, given all the excitement about Chat GPT. The problem is that AI systems rely heavily on copper cables, which continue to improve, and adoption of optics takes longer than one might expect.

Finally, China is embarking on a massive build-out of new national datacenter infrastructure. This will help local suppliers, including Huawei and ZTE, which reported lower sales for 2022. Appointments of new government officials around the country should be completed by the end of March and we expect a lot of new projects to start after that.

LightCounting's Quarterly Market Update reports are designed to provide an easy-to-digest snapshot of optical transceiver growth trends, backed up with detailed quarter-by-quarter sales data collected via LightCounting's proprietary vendor survey.

The report includes quarterly revenue and spending data for 30 top CSPs and ICPs, and quarterly revenues of 23 equipment makers, 13 optical components vendors, and 12 semiconductor manufacturers is also included.

The Quarterly Market Update is available to LightCounting clients at: www.lightcounting.com

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