Study: Optical networking revenues down 7 percent

The optical networking equipment market, down on its luck in recent months, sees revenues decline 7 percent for the third quarter.

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The optical networking equipment market, down on its luck in recent months, saw revenues decline 7 percent for the third quarter, according to a new study.

With quarterly revenue of $5.5 billion, the optical networking gear industry slipped from the second quarter, according to Dell'Oro Group, a networking market research firm.

The study, which includes the market for fiber-optic technologies such as metropolitan and long-haul dense wave division multiplexing (DWDM) gear and similar equipment, shows No. 4 Alcatel and No. 5 Marconi as the largest losers, with sales slipping 19 percent and 16 percent, respectively. Nortel Networks and Lucent Technologies, the two largest optical equipment makers, also tripped.

The declines come amid intense demand for bandwidth and fiber-optic networks. Declining profit margins and tighter capital investment markets have affected communications service providers, many of which in turn have curtailed their equipment spending.

"There's been a lot of speculation about softness in service provider spending," said Shin Umeda, principal analyst at Dell'Oro. "There's definitely a seasonal purchasing pattern in equipment spending. The first and third quarters are typically down, while year-end spending tends to be higher."

Analysts say price reductions did not play a factor in the sector's lower quarterly revenues as most pricing is locked into long-term contracts. Rather, manufacturers such as Nortel, which sent many optical networking stocks lower when it recently reported lower-than-expected optical results, said demand remains strong, but the industry cannot continue growing at astronomical rates.

Although most optical subsegments declined, the metropolitan optical market grew 37 percent during the quarter, showing evidence of the hot demand for high-speed network on-ramps in the nation's largest cities.

No. 6 Ciena and No. 7 Cisco Systems, though smaller optical players, grew significantly. Their revenue totals were smaller to begin with, but the two companies also specialize in optical equipment designed for two of the hottest subsegments.

Ciena, which develops technology designed to maximize the capacity of long-haul networks, generated 17 percent quarterly revenue growth. Cisco--with metro equipment from its Cerent acquisition--saw its revenue increase 25 percent over the second quarter, the study shows.

No. 3 Fujitsu posted revenues that were flat on a quarter-over-quarter basis, Dell'Oro said.