The Contenders: Submarine cable equipment suppliers bide their time as market begins to shift

Ethernet cable

Alcatel-Lucent (NYSE: ALU), TE Subcom, and NEC are the three largest suppliers of submarine cabling equipment in the world, but a slew of smaller manufacturer-builders are contending for the remaining share of the market. A number of them hold a large share of other telecommunications market segments--like Ciena (Nasdaq: CIEN). With this in mind, how well positioned are smaller sub equipment suppliers to take larger roles in the global submarine cable market? We look at five smaller suppliers that are looking to make a key impact on the market space.

Last year, Alcatel-Lucent made it known that it was offering its submarine systems division for sale. FSI was rumored to be sniffing around the division and was expected to offer between €600 and €700 million in the first half of this year. Permira and PAI also were mentioned. But a slowdown in submarine cable systems investment has potential buyers moving cautiously. TE Subcom has also found itself struggling to find new projects, and its $350 million Pacific Fibre operation shut down last August.

Submarine equipment supplier market share

Market share for supply of new systems, 2003-2013, primary contracts only (Source: Submarine Telecoms Industry Report 2013)

As large turnkey submarine cable system suppliers, it seems odd that ALU and TE are having trouble despite the promising forecast for new routes opening up in the South Atlantic and prospecting of the Arctic regions ongoing. Yet as our Contenders picks show, perhaps the era of the large, single-source supplier is on its way out.

Four of our picks hold less than 5 percent of the market between them. Two of this month's Contenders are equipment-only, rather than turnkey, submarine suppliers. These smaller, more specialized providers are making their way into a market that functions on an epic scale yet relies on numerous parts and segments supplied by a variety of vendors to function well.

While separately, our Contenders in the submarine supplier space don't seem to fit, the segment is beginning to roil under the surface. If Alcatel-Lucent manages to sell off its submarine division, the market could undergo a game-changing realignment, according to a recent study authored by Terabit Consulting for the Submarine Telecoms Forum.  

"The three wildcards in the submarine supply landscape are the future strategy of Huawei Marine Networks (including the possibility of partnering with Chinese cable manufacturers); the expected sale of Alcatel-Lucent's submarine networks division and a realignment of the industry's manufacturing assets; and the growth of equipment-only suppliers such as Ciena, Infinera, Mitsubishi, and Xtera, driven by 40G and 100G transmission technologies," the report said.

Key submarine equipment upgrades

(Source: Submarine Telecoms Industry Report 2013)

Those upgrades, from 10G to 40G and now with demand rising for upgrades to 100G, will help drive the submarine system supplier market segment further upward.

"The upgrade market will arguably be the most consistent source of growth and has been targeted by four equipment suppliers in addition to the traditional submarine system suppliers," the report said.

These five companies may be in the best position to seize opportunities that arise during this predicted tectonic shift in the market.

The Contenders: Submarine cable equipment suppliers bide their time as market begins to shift