A majority of Q1 2023 financial results have been reported now and are summarized in a Research Note published today by LightCounting Market Research. The data makes it clear that this was the quarter when the “bullwhip effect” finally stung optical components vendors and semiconductor makers. Simply put, high inventory levels at equipment makers and end-customers stifled sales growth at the component level. After three years of supply chain disruptions caused by COVID-19 pandemic and the resultant double-ordering, it was just a matter of time before this happened.
Among the OC and semiconductor vendors, double-digit declines in Q1 2023 sales compared to Q4 2022 were the norm. Coherent and Lumentum, the two leading western optical components vendors, reported sequential declines in sales of 9% and 24% respectively compared to Q4 2022. Accelink, Broadex, Eoptolink, Innolight, and Linktel all reported double-digit sequential declines in sales as well. Five of six semiconductor makers reported sequential drops in sales and further guided for another sequential decline in the current quarter.
Network equipment makers reported slight growth in sales, while datacom equipment companies exhibited some strength, led by Arista’s 54% year-over-year gain in revenues.
And as was the case in Q4 2022, both ICPs and CSPs again reported slowing growth in key business areas, continued layoffs, and guided toward a moderation in spending growth in 2023.
A key question now is when will inventory imbalances work themselves out? Normally this should only take a few quarters, but with slowdowns in sales and spending by end-customers layered on top, it could take longer. Some companies said they believe resolution would not come before late 2023 or early 2024.
And inventory levels are not the only cause for concern. Cloud services revenues drive ICP investment in data center equipment and optics. And the data for Alphabet, Amazon, Apple, and Microsoft is clear – cloud revenue growth is slowing down. We have reported on this in previous quarters and the Q1 2023 results confirm that the trend is continuing.
This is true for each of the Top 4 individually as well as for their combined revenues.
These financial results for Q1 2023 are discussed in greater detail in the Research Note published by LightCounting today, which is available to subscribers at: https://www.lightcounting.com/login.