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Study Finds Optical Spending on the Rise as Data Centers Look for 100G Metro Connections

May 27, 2015

At the risk of sounding like a broken record, the need for speed inside data centers, and as importantly their connectivity to each other and increasingly their service and application customers, continues to grow.  It is doing so exponentially.  

A few factoids from the Cisco Cloud Index illustrate the point. Released in November 2014, Cisco’s updated GCI report for 2013 – 2018 projected:

  • Global data center traffic will grow nearly three-fold
  • By 2018, global data center traffic will reach 8.6 zettabytes per year
  • By 2018, 76 percent of all data center traffic will come from the cloud
  • By 2018, three out of four data center workloads will be processed in the cloud

Think about the fact that 2018 is not that far away.

The way in which the industry is going to keep up with all of that data being created, stored and moved around is though the constant upgrading of the networking infrastructure and that means fiber optic systems.  It means fiber end-to-end from the inside the data center connecting the racks to the WAN through the core and out the other side.  It is because of the heavy reliance on fiber networks in the cloud-based and data center-centric services world we are rushing toward that taking the occasional look at the fiber optic network hardware market is useful. 

IHS Infonetics released its Q1 2015 view of the optical network market.  The interesting news is that even in the face of sluggish service provider spending which has put a damper of networking equipment vendor results in general for Q1 the report found that spending in this market was up 5 percent in the first quarter of 2015 (1Q15) from year ago.  In addition, it found that there are signs of improvement in EMEA (Europe, the Middle East and Africa) and as Japan prepares for a large-scale 100G rollout.

Source: IHS Infonetics

“The focus in optical networking is now shifting to the metro as new products targeted specifically at this market are announced and scheduled for production. This will allow datacenters and traditional service providers to more rapidly adopt metro 100G in a significant way,” said Andrew Schmitt, research director for carrier transport networking at IHS.

“Meanwhile, the service provider market is fracturing into two factions—the telcos and webcos—each with specific optical transport needs and requirements. Webco spending is growing faster right now, so vendors are repositioning to align roadmaps and marketing with their needs,” Schmitt said.

A few other highlights from the quarterly report—which analyzes sales and trends for metro and long haul SONET/SDH and WDM equipment, Ethernet optical ports, SONET/SDH/POS ports and WDM ports, and includes discussion of the fortunes of the top vendors—include:

  • The worldwide optical network equipment market, including WDM and SONET/SDH, totaled $2.7 billion in 1Q15
  • With 2 consecutive quarters of year-over-year growth, Europe appears to be exiting an optical slump; results in the region are better than the headline numbers due to the strengthening dollar
  • The company outperforming in Europe is Alcatel-Lucent, with a steady trend of rising revenue
  • WDM revenue rose 9 percent globally in 1Q15 from the previous quarter, putting up an 11th consecutive quarter of growth
  • 100G spending is rapidly increasing worldwide and comprises around a quarter of total WDM revenue, which is flowing primarily into the hands of Alcatel Lucent, Ciena, Cisco, Huawei and Infinera
  • Internet content providers (ICPs) continue to surge and presently account for roughly one-tenth of North American optical spending, though volatility in future expenditures is likely

There are few surprises in the findings for the year thus far.  The fact that the market is hanging in there in the face of an economically

Image via Shutterstock

challenging environment, even in tough places like EMEA, reflects just how strong the needs of data centers are for faster WAN connectivity and 100G in the metro being singled out again makes logical sense. 

Indeed, what may be the most interesting thing to watch in coming quarterly reports will not be the sales but rather those vendor rankings. With the recent Nokia move to acquire Alcatel-Lucent and all of the speculation about who might be next as the industry plays an interesting high stakes game of musical chairs, that list and the rankings is likely to look very different a year from now.  What will not be different barring some major externality will be the continued growth of the market. 


Edited by Maurice Nagle

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