TOP TAKEAWAYS: EMEA 4Q CAPEX BINGE; OPTICAL DOWN 4% FOR 2010
February 23, 2011
Global optical spending was down 4% for all of 2010, but up 10.2% in 4Q10 over 3Q10 on the back of a big surge in EMEA spending. As we expected, APAC posted its first negative year since 2004, with the region down 6.6% for 2010. Huawei posted its first-ever down year in optical equipment revenue.
The end-of-year capex surge in EMEA exceeded everyone’s expectations, including ours, with 4Q10 up 25% over 3Q10. Huawei finally showed up for the spending party in the region, with a 71% QoQ increase, while Alcatel-Lucent grew 21% in the region. But the surge in spending was strongly biased toward SDH equipment (+49%) vs. WDM (+12.6%) as major carriers stocked inventory. Growth in WDM in 4Q10 didn’t match the growth rates of 3Q10.
We expected North America to sit out an end-of-year capex jump based on the gains notched earlier in 2010, and report a flat quarter, but the final result for 4Q10 was -8% from 3Q10. All of the weakness was concentrated in SONET/SDH equipment, as evidenced by the large drop in Tellabs, Fujitsu, and Ciena revenue in this category. WDM spending for the region was roughly flat, as we expected.
The decline in SONET/SDH spending in North America is accelerated by a shift toward next generation mobile backhaul infrastructures. Vendors such as Alcatel-Lucent and Adtran have yet to feel these declines and may see the weakness in the future. A similar transition in EMEA awaits, despite the stellar quarter SONET/SDH notched in 4Q10. The same transition is well underway in China, where Huawei SONET/SDH revenue dropped $225M (down 17%) in 2010 compared to 2009, as a result of SONET/SDH mobile backhaul. In China, the money is being spent on carrier Ethernet equipment.
ROADM spending set a new high in 4Q10, surging 8% over 3Q10 and 29% over 4Q09. Total WDM ROADM was up 18% for 2010. On a troubling note, we cannot reconcile the healthy growth of this market with the torrid growth of the WSS component market, and look forward to re-examining this relationship in our March ROADM component report.
100G is now officially a multi-vendor race, with third party confirmation of Alcatel-Lucent’s 100G shipments into the field in low triple-digit port quantities. We still firmly believe 100G growth will outpace 40G growth within 2 years.
EMEA RECOVERY ARRIVES, NA GROWTH SLOWING, APAC SLIPS
Global optical spending was up 10% in 4Q10, but spending in the West (North America and EMEA) was mixed with EMEA surging 25% and North America declining 8%. North America paused its multi-quarter healthy recovery from a terrible 2009, while EMEA continued its capex recovery with a surge in spending. Big EMEA carriers, which were the source of weakness in 2Q10, are waking up and spending.