Strategy Analytics: GaAs at core of fiber-optic network expansion; profits remain elusive

Fiber Optics Weekly Update, August 26, 2005

The market for high-speed fiber-optic integrated circuits (ICs) will grow by 27 percent in 2005, from $280 million in 2004, according to a report released by Strategy Analytics' Gallium Arsenide [GaAs] & Compound Semiconductor Service.

According to the report, after a considerable period of stagnation, service providers are once again purchasing optical capacity to meet their growing traffic needs. OC-48 and OC-192 links will be at the center of this growth, says the report, and the deployment of high-capacity routers will also begin to stimulate OC-768 purchases. Overall, the report sees the market growing at a CAAGR of 24 percent through 2009.

The report says that since much of the upgrades will be for backbone infrastructure, GaAs IC vendors will be at the heart of this development. According to the report, while GaAs TIAs and post amplifiers will see increased competition from alternatives (mainly Silicon-Germanium (SiGe)), the crucial laser driver function will remain largely the domain of GaAs at higher speeds.

Despite its positive outlook, the firm warns that industry consolidation will be required to counteract the effects of oversupply and intense pricing competition.

"Following the telecom industry meltdown a couple of years back, CapEx budgets were slashed, and price became the primary competitive weapon for the numerous fiber-optic device companies," noted Stephen Entwistle, vice president of the Strategy Analytics strategic technologies practice.

"The market for fiber-optic devices is there and it is growing," added Asif Anwar, director of Strategy Analytics' GaAs and Compound Semiconductor Technologies service. "However, the IC industry is in a structurally poor state. For profitability to return, what's needed is not only growing demand, but some consolidation and stability among IC suppliers."

This report, "Fiber-optic Analog IC Market and Technology Dynamics," provides a comprehensive view of markets for Si, SiGe, GaAs, and Indium Phosphide (InP) fiber-optic ICs, and also includes IC, module, and systems vendor profiles.