Global optical components market contracts in Q2 2011

MELBOURNE, AUSTRALIA: The global optical components (OC) market contracted by two per cent sequentially in the second quarter of 2011, the first decline in two years, according to Ovum.

In a new market share alert, the independent telecoms analyst finds that the drop in revenues to $1.55 billion and a weak outlook is a warning sign that intense competition and pricing pressures are looming for the sector.

Daryl Inniss, Ovum analyst and author of the market alert, said the contraction had been caused by inventory correction, low demand from the telecoms sector and the persisting weak economy.

He commented: “As well as the overall decline in the sector, market leader Finisar contracted by seven per cent sequentially and lost market share on a rolling 4Q basis. The short-term outlook is mixed. However, it is the long-term outlook that is more worrying.”

Inniss is concerned is that the inventory correction changed the OC sector into a buyer’s market, even for new products. This can lead to a hyper-competitive environment and aggressive price declines.

He commented: “There is no indication that this aggressive pricing has entered the market as yet. However, the inventory correction means market leaders could be caught by their competitors. The end result will be a shortened honeymoon period for new OC product areas, with suppliers expecting to grow revenues and margins to recoup their investment.”

Ovum’s market share alert cites examples where the first murmur about price pressure has started to be heard, including Oclaro being asked for discounts on 40G equipment.

Meanwhile, according to the report findings, out of the top 10 OC suppliers, Oclaro posted the weakest performance, with revenues nine per cent less than the previous quarter and four per cent less than the same quarter last year.

Inniss added: “Our preliminary research indicates that there will be a modest improvement in the third quarter of this year. However, uncertainty persists.”