Opto's sun will come out: not necessarily tomorrow, though - Business & Finance - optoelectronics industry forecast

Electronic News, July 22, 2002 by David Manners

Does Bookham Technology closing down two of its factories put an end to the dreams of U.K. photonics startup companies?

Absolutely not, says iSuppli, the supply chain analyst company set up by former International Rectifier CEO Derek Lidow. iSuppli believes good times for the photonics boys are just about to roll.

"Optical component demand fell more than 26 percent in 2001, and it will fall another 29 percent this year. But optical component demand will return to a robust growth rate of 21 percent in 2003, and growth will remain higher than 25 percent a year from 2004 through 2006," said Steve Rago, principal analyst for the communications sector at iSuppli.

The golden scenario for components companies of steeply increasing demand and severe shortage of supply is going to hit next year, according to iSuppli.

"In 2003, traffic will exceed network capacity," Rago said. "Fiber optics is mainly used for transmission, but it is also being used for switching, so optical will become a much bigger element of these networks. By 2004 carrier spending should significantly increase, and suppliers need to be ready with their next generation of long-haul products if they want to participate. OEMs need to form relationships with strong optical component suppliers during 2002 so they are in a position to receive adequate supply when demand picks up again in 2003. iSuppli is projecting a very sharp turnaround."

However, the supply side of the market equation is going to be in disarray. "Lucent disbanded its optical segments," said Rago, adding, "It's almost out of the optical business right now."

The same is true of other big equipment OEMs. So anyone who can supply the right components will be sitting on a gold mine because the operators will only want the latest equipment, and only the component manufacturers can deliver that.

"Time-in-market will be the new gold standard for semiconductor suppliers in the future," Rago said. "Cost, performance and time-to-market will not be enough. The carriers will want stuff that can be upgraded in the field so that the equipment can stay in the network for a longtime. The demand for optics is going to go up, and supply is not going to be there."

For those photonics companies still standing when the demand picks up, a golden future beckons of equipment suppliers beating a path to their doors amid a market frenzy of shortages and soaring prices.

David Manners is an editor for Electronics Weekly, a sister publication of Electronic News.