Optical “Supercycle” Farce

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In one our recent daily updates, we pointed out: “How can the [optical supercycle] term be used when one of the biggest vendors, Ciena, is only expecting single digit growth in fiscal 2017?” Also, the supplier evidently felt compelled to bend over backwards, and at an unknowable price, to report a record order of backlogs. With the exception of Chinese system vendors, the booming business mainly applies to component companies supplying them. Therefore, an article about three months ago was incorrect with its title: “A dormant tech sector is suddenly surging like it’s 1999.” Obviously, certain analysts on the Street have been pushing the exaggerated characterization for their own purposes, with our favorite that it is “a bona fide optical supercycle.” Although Infinera has been struggling from in our opinion, principally managerial incompetence, certainly it would be performing much better if market conditions were so universally wonderful. In addition, it is doubtful that Xtera Communications would have been forced to file for Chapter 11. Other examples include the following:

  1. At Nokia’s Capital Markets Day (November 15, 2016), it was stated: “In terms of IP and optical, our view is that the market will remain flat in 2017 compared to 2016.”
  2. Despite all of the supposed excitement surrounding metro 100G and its introduction of a new data center interconnect product, at the Annual Meeting of Shareholders, Cisco Systems executives did not mention its optical business – neither did it come up at the Q1 2017 earnings conference call.
  3. Although coming off of a record quarter, and rather unusual for itself from an historical perspective in adopting the “optical megacycle” rhetoric, ADVA Optical Networking’s CEO still said on its last earnings call, “…I think it’s a good conservative view to say high single digits [for global optical growth excluding China].”
  4. MRV Communications’ year-to-date third quarter revenue for 2016 was lower than the comparable time in the previous year.
  5. In its Q2 2017 earnings presentation, Fujitsu Ltd asserted: “In North America, revenue fell, particularly in optical transmission equipment, as telecommunications carriers entered a changeover period in investment in new models. We are assuming that the difficulties in the equipment business in North America will continue and are working to expand and shift to our software and services business.”

Although Fujitsu Network Communications has definitely been floundering lately on the transport equipment side after losing so much technical talent in Richardson, TX (see our assessment in our metro 100G report), if there were a “supercycle,” Fujitsu corporate in Japan most likely would not have been as inclined to put so much of its emphasis away from hardware.

Please find details on our latest reports, Clash of Metro 100G Optical Vendors with Shifting Network Paradigm and Clash of Optical Component Vendors & Technologies in Data Center Networks here. For our seven-day a week updates, please follow us here.

[written by Mark Lutkowitz]

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