We have discussed in the past how macroeconomic conditions are often ignored in assessing the future prospects for the telecom/datacom optical market, such as the devastating effects of net neutrality actions across the globe. Occasionally, matters will be brought up during earnings calls, which have a direct bearing on financial performance, as with Ciena mentioning the relationship of a strengthening US dollar with other currencies. Still, while absurdly optimistic projections for higher data rates or new functionality have for quite a long time not only have been done in a vacuum, specifically by a large number of industry analysts, without any regard to historic trends, the utter indifference to the present struggles in the international economy borders on malpractice.
Just the sheer amount of quantitative easing in major markets internationally in which centralized governments are arbitrarily printing money and racking up debt is hardly promoting growth in those economies. Maintaining interest rates near zero whether it is just above or below for prolonged periods of time is also not a recipe for a boom. The increasing alienation with capitalism (which for all its faults, a system that has resulted by far in the biggest improvement in the quality of life ever for literally billions of people) as well as the movement toward draconian regulation of markets worldwide is not going to result in as much innovation in any industry.
Regarding the optics realm, even more government interference has been welcomed, and there has been a lot of emphasis placed by optics trade organizations, including OSA and SPIE, on AIM Photonics. However, as we noted in several articles in October 2014, concerning the Integrated Photonics Manufacturing Institute (the original name of the initiative), these public-private partnerships have an abysmal record.
There is a lot of grumbling already about AIM. One company that wanted to join the consortium was asked to contribute $1 million, along with its packaging Intellectual Property (IP), and then it was supposed to teach AIM how to practice its IP, so it could be used for the benefit of its other members. Of course, the firm did not sign up. As a general rule, even quasi-government entities should not be in a position to pick winners and losers, and this kind of process is often going to benefit only the large corporations.
There has also been speculation that with all of the recent turmoil in the US stock market, which has at least partially reflected the concerns with a potential major downturn that one of the Web 2.0 companies has already reduced its outlook on 100G. We are currently only aware of a four hyperscale data center companies that are operating at that rate, with perhaps one or two more joining this group within the next 12 to 18 months. Of course, it is not out of the question that the other three firms may have to adjust downwards on their high-end expenditures as well depending on the extent of future turbulence with stock prices. Naturally, pricing on 100G transceivers, which had been expected to decline by as much as 50 percent in 2016, will not decrease as precipitously if there is a drop in demand for that speed this year.
[written by Mark Lutkowitz]