Optical transport market still hasn't bounced back

  • According to Dell’Oro, the optical transport market declined 13% in Q1

  • Stockpiled inventories and macroeconomic conditions will likely continue to stall growth

  • Despite the outlook, Cisco, Huawei and ZTE gained market share in the quarter

At a glance, the optical transport market seems to be in a glass-half-empty state.

A new report from Dell’Oro Group found the optical transport equipment market declined 13% year-over-year in Q1 2024 and will likely decline 2% for the full year 2024. Not the most positive outlook.

Part of it has to do with customers continuing to work through inventory (digestion, as vendors often refer to). That’s probably the most talked about “undercurrent” in the optical transport market, said Dell’Oro analyst Jimmy Yu.

But another factor is “worsening macroeconomic conditions.” Yu noted GDP growth has “notably slowed” in a few countries and regions, like Japan and Europe. “And I’m sure other countries have lower economic growth.”

“Also, while it is difficult to confirm. I do think a higher interest rate environment takes time for service providers to get used to,” he told Fierce. “The days of 0% short-term interest rates are gone and service providers need to operate under the assumption interest rates will be higher in the future.”

Who’s affected?

According to Dell’Oro, the dense wavelength-division multiplexing (DWDM) market declined in most parts of the world, particularly in North America and parts of Asia Pacific.

As for North America, Ciena, Infinera and Fujitsu hold a combined share of 80% of the optical market there, according to Yu.

“All three are being impacted by the North America decline," said Yu.

Adtran, CommScope and Corning are other companies facing downswings in optical sales.

However, not all vendors are seeing gray skies. The report noted three vendors gained more than 1% of market share YoY in the first quarter — Cisco, Huawei and ZTE.

And interestingly, the only regions that saw positive DWDM growth in the quarter were China and the Middle East and Africa (MEA), which increased 8% and 16%, respectively.

Indeed, Yu noted Huawei and ZTE are benefiting from their domestic market entering a growth phase of DWDM deployments, “especially for long haul 400 Gbps wavelengths.”

“Both companies are doing well expanding their market share in other countries where geopolitics play less of a role such as Middle East, Africa, and Latin America,” he said.

Cisco meanwhile “seemed to have entered the inventory correction earlier than other vendors and passed the low point.”

Though the company earlier this year laid off 5% of its global workforce, citing macro uncertainty and a slowdown in corporate spending.