The optical transport market continued to grow in the first quarter, fueled by shrinking lead times and not as many component shortages, according to a recent report from Dell’Oro Group.
Indeed, optical transport equipment revenue increased 8% year-over-year. Huawei, Ciena, Nokia, ZTE and Infinera were the top suppliers in the trailing four quarter period, with Dell’Oro noting Nokia and Infinera particularly “outperformed.” Those vendors saw optical revenue rise by 13% and 20% year-over-year, respectively.
In Nokia’s case, Dell’Oro Group VP Jimmy Yu told Fierce the vendor in the past year has opened “some big contracts,” especially in Europe. But what really helped Nokia’s optical revenue was that “they had enough supply come in that they actually start to deliver on these projects.”
As for Infinera, Yu noted it has done “pretty well in managing [its] supply chain,” compared to other optical system vendors. Infinera’s ICE6 optical engine, which has 800-gig capabilities, is also impacting its optical revenue.
“As they produce more of that…they’re able to win with that product," he said. "They’re gaining because they’re shipping a lot more of the ICE6 throughout the year and in the quarter."
But Q1 optical transport revenues weren’t as high as they could have been, as Dell’Oro’s report pointed out the China market “slightly contracted” in the quarter. Yu said while China ended its “zero Covid” policy last December, the country is “still maneuvering around ending [that] policy.”
“I think you can have this sort of three to six months’ time for [China] to kind of return to grip,” he added. “So, I do think maybe the second half of this year, they could start to come back to year-over-year growth.”
Speaking more broadly on the supply chain, Yu thinks the optical transport market is “entering the end” of the supply chain shortage issues that have existed since the start of the pandemic.
“Based on just the way the components can be flowing through, it sounds like the shortage is actually coming to a close,” he said. “I do expect it to continue improving this year.”
Although component shortages may not be as prevalent this year, Yu noted some operators, especially in North America, are concerned about a possible recession. “They may hesitate on how much they spend this year, just to be cautious,” he said.
Finally, Dell’Oro highlighted internet content provider spending on wavelength division multiplexing (WDM) equipment continued to increase in Q1. But Yu said he was cautious on the trajectory of that spend in 2023.
“A lot of these big internet content providers are concerned about the economy and they’re starting to do layoffs, watching their capital,” he said. Those providers could also dedicate more of their budgets on AI and machine learning in their data center servers.
“The third thing I’m a little concerned about is the concept of doing IT over [dense] WDM,” Yu added. “So not really using a traditional DWDM system, but using a 400ZR optical plug on a router that also cannibalizes from the traditional optical transport markets that I track.”