Leading industry lights talk to Keely Portway about the challenges and opportunities faced by the optical communications supply chain in the last 12 months, and predict what could lie ahead
‘In one year, through one powerful virus, the entire world shifted its focus. It is undeniable that everyone is in this together,’ said Becky Bosco, executive director of research at LightCounting Market Research.
‘The community aspect of what the world is doing to stop the spread of Covid-19 permeates our news outlets. Unquestionably, the pandemic has disrupted every aspect of world society, and governments have sent the urgent message that individuals must modify how they live for the good of the broader society. For large numbers of persons today, that means staying home when they can, and wearing masks and imposing “social distance” when they can’t – leading to broad changes in how they communicate and interact daily.’
Optical communications, believes Bosco, is leading the way with the abundance of new technologies needed to support the new ‘working-from-home economy.’ ‘Remote working, noted Stanford University economist, Nicholas Bloom, increased from 5 per cent before the pandemic to above 40 per cent and may hold firm or even continue,’ she said.
‘While the economic impact of the pandemic is sobering, it also can boost fortunes of optical communications technologies, such as 5G networks, in the longer term.’
Covid-19 has certainly boosted demand for network bandwidth. The problem with this, said Bosco, is the majority of businesses and consumers do not have extra money to spend on more bandwidth. ‘It’s worth reviewing how much the global internet has changed the landscape for telecom services, equipment and information. New companies have emerged that are global in scale by seizing on the internet opportunity, dwarfing even the largest traditional telecom service providers, in terms of potential and actual users.’
The ‘covid-effect’ is still lingering in many markets. Only China, North America, and South Korea show no signs of abating, according to Bosco. ‘Simultaneously the 5G build-outs in CALA, EMEA and India remain deeply affected. At the same time, there is a robust open RAN momentum, fuelled by European service providers such as Orange and Vodafone operating local networks. However, China will keep Huawei afloat this year, allowing it to maintain its stable first market share position. ‘What is yet to evolve is if Huawei and ZTE will source-critical 5G base station components to sustain the pace of 5G deployments in China and other international markets.’
Looking at the performance of technology segments, Bosco pointed out that sales in optical transceiver segments rebounded in Q2 of 2020, after supply chain disruptions and labour force lockdowns waned. ‘The market was up 27 per cent sequentially after Covid-driven dips in Q1 2020 and has moved on to hit a new record high,’ she said. ‘Our research revealed 100G Ethernet transceivers had exceptionally high growth. Total optical component vendor revenues and transceiver sales hit a record high. Cloud companies continued to spend through the year, mainly driven by China (Alibaba), Amazon and Microsoft.’
Telecom and datacom segment sales, Bosco said, will grow sequentially due to strong demand into 2021. ‘Spending by service providers and enterprises is slowing down in Europe and the United States,’ she said. ‘As Covid-19 continues to disrupt the economy, the chances for a more in-depth, prolonged recession into 2021 are increasing.’
While few businesses will be immune to a worldwide economic downturn, it is cloud, telecom and enterprise firms that are well positioned to navigate it, while continuing to invest in future applications. LightCounting’s market forecast was revised down in October for all market segments, with an exception of optical interconnects, which are mostly active optical cables (AOCs). ‘This will become the third largest segment by 2025,’ said Bosco.
The situation in 2020 has undoubtedly forced many organisations to reimagine the future of work, related to a successful future, believes Bosco. ‘We’re used to collaborating with colleagues, attending conferences or sitting in a room to experience a product demo in person,’ she said. ‘While some of those experiences are making their way back today in Asia, they are by no means the standard around the world. Now is the time to find creative ways to strengthen your relationships at home and work. 5G speeds will continue to make these connections possible and guide towards a brighter, more connected 2021.’
Tom Hausken, senior advisor at The Optical Society (OSA), advises optics and photonics suppliers to prepare for growth in 2021. He said: ‘Faced with a sudden and widespread crisis in 2020, optics and photonics suppliers have fared relatively well so far. 2021 will be better, but patience will be needed.’ Hausken said early effects of the pandemic interrupted supply chains, sent workers home and closed borders. ‘While this was a serious blow to companies’ finances, many optics and photonics companies were able to stay open as essential businesses, or maintain global operations remotely until facilities reopened.’
Supply and demand
The second and longer-lasting concern for Hausken is the falling demand in the wake of the pandemic. He said: ‘The pandemic set off a chain reaction which will continue to play out at least into 2022. Again, however, the effect on optics and photonics companies will be relatively limited. Companies in the optical communications and display sectors are busy meeting new demand for optical networking equipment and laptop computers. This year has also been buoyed by ongoing sales of semiconductor manufacturing tools.’
OSA Industry Development Associates (OIDA) forecast that revenues of optics and photonics companies would decline about 16 per cent in 2020, compared to 2019, with a recovery of about 8 per cent in 2021.’ Such a decline would be dramatic in most years,’ stated Hausken, ‘but it’s modest compared to some industries, such as air travel, hotels and restaurants, which have been devastated.’ Meanwhile, it is heartening to see product development and new product releases continue. ‘In OIDA’s conversations with the community,’ said Hausken, ‘companies report that operations continue with minimal slowing, notwithstanding the obvious interruptions earlier in the pandemic. One company noted that slippage in schedules happens in normal times too. In the case of their suppliers, it’s often difficult to know whether a delay is due to the pandemic, or due to the usual reasons. One company even reported that they were busier than usual, completing proposals for government customers in late summer 2020, as agencies rushed to make orders before the end of the US government fiscal year. Suppliers may make up time and fill pent-up demand in some cases, but funds may be lost for good in others.’
With in-person trade shows currently suspended, Hausken advises firms to be creative about promoting product releases and finding sales leads. ‘This means better use of social media channels and online events such as our Technology Showcase and sponsored webinars. It’s common to hear the pandemic has changed society for good. Certainly many things will change, but growth will return in 2021. Our industry will remain resilient.’