1.cioe september 2012 - julie kunstler - presentation - ovum

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FTTx Market in Review: Focus on PON and China

Julie Kunstler

[email protected]

CIOE

September 2012

Shenzhen, China

mailto:[email protected]

© Copyright Ovum. All rights reserved. Ovum is an Informa business. 2

Optical components industry

Revenues

Leading vendors – China enters “top 10” list of optical component vendors

Dynamics

PON market

Dominance of China’s FTTx subscriber base growth

Incredible 2011 – a look at history and forecasts

10G PON and WDM PON

EPON and GPON

Deployment patterns in FTTx networks

Strength of China’s vendors at PON equipment and component levels

Cost-cutting approaches – BOSAs gain share, PIC may follow

PON ecosystem matures

Focus on ODN operations – OTDR in PON

Conclusions and thoughts

Overview


Focus on OC Market


Service providers (SPs)

System vendors

Subcomponent and material

Optical components Avago, Finisar, JDSU,

Sumitomo, Oclaro, Opnext, Source Photonics...

Alcatel-Lucent, Brocade, Cisco, ECI, Ericsson, Huawei, Juniper, Motorola, NEC, Nokia/NSN, Nortel, Tellabs,

ZTE...

2011 annualized revenues $1.91tn, up 7% 2011 vs.

2010

America Movil, AT&T, BT, China Mobile, China Telecom, FT, DT, NTT, Saudi Telecom, Sprint,

Telefónica, TI, Verizon, Vodafone, Zain...

Source: Ovum * Includes only optical and datacom components

Infrastructure vendors’ 2011 revenues $43.6bn,

up 8% 2011 vs. 2010

Optical component 2011 revenues of

$6.2bn, up 9% 2011 vs. 2010

Ovum does not track subcomponents quarterly

and does not track materials.

Telecommunications grew in 2011 despite challenges


OC revenues appear disconnected from optical networking and service provider capex

Due to various reasons – supply chain loading, FTTx market, direct spending by applications service providers

-20%

-10%

0%

10%

20%

30%

40%

50%

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12

YoY

reve

nue/

spen

ding

OC ON Capex

Source: Ovum


Finisar 15.7%

JDSU 10.5%

Sumitomo 9.5%

Avago 9.5%

Oclaro 5.9%

Opnext 5.3%

Fujitsu Optical Components

4.4%

Source Photonics

3.8%

NeoPhotonics 3.8%

Oplink 3.0%

Other 28.8%

1Q11-4Q11: $6.2bn OC market

Optical infrastructure vendor landscape – 2011

China’s vendors are strong in optical networking market

Merger of Accelink and WTD will propel China into “top 10” in optical components market

Source: Ovum

Huawei 21.2%

Alcatel-Lucent 16.2%

ZTE 10.9% Ciena

8.2%

Fujitsu 6.7%

Cisco 4.9%

Ericsson 3.9%

NEC 3.5%

Nokia Siemens 3.3%

Tellabs 3.0% Other

18.2%

1Q11-4Q11: $15.6bn ON market


What happened, what is happening

Recession slowed the market in 2009

OC recovered in 2010

ON and capex recovered in 2011

Strong spending in China for core and access in 2009/2010

Strengthening Chinese vendors

Thai floods reduced OC manufacturing capacity in 2011

Meanwhile, global bandwidth growth demand continued

Giving rise to demand for low-cost, high-data-rate technologies

Macroeconomic uncertainty moderates telecom infrastructure growth

OC suppliers must continue to deliver more with less


Focus on PON


FTTx subscriber growth – domination by China

0

50,000

100,000

150,000

200,000

250,000

2009 2010 2011 2012 2013 2014 2015 2016

FTTx

con

sum

er su

bscr

iber

s (00

0s)

FTTx consumer subscribers by country/region

China Japan and Korea Rest of Asia Europe NA Rest of World

Source: Ovum

China will represent 50% of worldwide FTTx consumer subscribers in 2016.

China represented 20% of worldwide FTTx consumer subscribers in 2009.

China’s CAGR of 42% surpasses the rest of Asia (31% CAGR) and Europe (28%)

Japan & Korea continue to add but started from high base.

Growth from many Eastern & Western European countries.

Australia, Indonesia, Malaysia, NZ and others lead growth.


OLT ports - shipments and forecast

Very large increase in PON OLT port shipments from 2010 to 2011; more than 80% of OLT shipments were for China’s networks.

OLT shipments forecast to remain high in 2012, followed by year-over-year declines.

Source: Ovum

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2010 2011 2012 2013 2014 2015 2016 2017

OLT

por

ts (0

00s)

OLT port shipments by type – actuals and forecast

10G PON OLT portsEPON OLT portsGPON OLT ports


OLT port forecast – the influencers

OLT port shipment forecasts remain high compared to 2010:

Over 2.8 million in 2017 compared to 2.1 million in 2010

FTTx network rollouts in China will have a long-term impact on FTTx equipment

Forecast – possible upside:

If several other countries accelerate FTTx deployment plans, such as Brazil, Mexico, Indonesia, India, and/or Russia

If China State Grid begins countrywide deployment of private FTTx network for smart grid

If FTTx networks are deployed across the US


Where is 10G? Where is WDM PON?

Forecast includes very little growth for 10G in near term

10G EPON shipments began in 3Q11, but volumes will remain low

10G PON inhibitors include:

Focus of service providers on EPON and GPON deployments

Lack of complete, low-cost ecosystem – especially compared to declining costs of EPON and GPON

Service providers are interested in 10G symmetrical for mobile backhaul and business services but 10G symmetrical ecosystem is not complete

WDM PON will be used for niche applications

WDM PON is unlikely to be used for residential access in the near future


Shipments of EPON OLT ports continue

Source: Ovum

Japan and Korea continue EPON-based FTTx network deployments.

China – various provinces and cities that began with EPON are continuing with EPON, others are adding GPON.

We expect EPON OLT port shipments to begin to decline.

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

OLT

por

t shi

pmen

ts

Global OLT port shipments – EPON versus GPON

GPON OLTEPON OLT


Shipments of EPON ONTs/ONUs continue

EPON ONTs/ONUs continue to ship in large quantities.

We expect EPON ONT/ONU shipments to continue to ship given the lag between building the network and adding subscribers onto the network.

Source: Ovum

0

1,500,000

3,000,000

4,500,000

6,000,000

7,500,000

9,000,000

10,500,000

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

ON

T/O

NU

shi

pmen

ts

Global ONT/ONU shipments - EPON versus GPON

GPON ONT/ONUEPON ONT/ONU


New network builds – focus on central office versus subscribers Ratio of shipped ONTs/ONUs to OLTs has been very low in China, this

impacts global ratio.

Source: Ovum

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Global North America EMEA Japan China

Rat

io

Ratio of shipped ONTs/ONUs to OLT ports

2009 2010 2011


Low ratios: Why? What are the implications?

FTTx network build cycle:

Low ratios expected in early stage of network deployments – initial focus is on preparing the ODN and installment of OLTs in central offices

Higher ratios expected when focus shifts to bringing customers onto the network – leading to higher shipment ratios of ONTs and ONUs to OLTs

Early network builds include:

EMEA – Russia, Romania

China

Later network builds include:

Japan – deployments have been under way by service providers for several years

US – Verizon’s deployments have been under way for several years; other deployments are small scale

Note: We do not expect to see ratios reach theoretical splits


China’s vendors are strong exporters in FTTx market

China’s vendors dominate the OLT equipment market

Source: Ovum

0%

20%

40%

60%

80%

100%

Global 2010 Global 2011 EMEA 2010 EMEA 2011 SCA 2010 SCA 2011

% o

f OLT

por

t shi

pmen

ts

OLT port shipments Chinese vendors(Huawei, ZTE, FiberHome)

All others

Chinese vendors increase from 76% to 86%




OC vendors: market share in China

Total optical components market “hides” the growth by China’s optical component vendors in FTTx

Source: Ovum

Total optical components revenue breakdown by vendor location

0%

20%

40%

60%

80%

100%

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

North America Japan China Other


OC vendors market share – FTTx transceivers/BOSAs

OLT transceiver market share – 2011*

ONU/ONT transceiver market share - 2011

*Vendor segmentation based on vendor location and China includes vendors supplying to Huawei and ZTE, regardless of location.

Source: Ovum

China’s optics vendors display growing market share for both OLT and ONU/ONT transceivers and BOSAs

Several North American optics vendors are pulling back from ONU/ONT market

North America Japan China Other


BOSAs will become the standard approach for ONTs

BOSAs (bidirectional optical subassemblies) will overtake transceivers as price pressures continue

China’s vendors lead this cost-cutting change

Source: Ovum

0%

20%

40%

60%

80%

100%

2010 2011 2012 2013 2014 2015 2016

% o

f tra

nsce

iver

s an

d B

OSA

s to

tota

l gl

obal

ON

Ts/O

NU

s

Global ONTs/ONUs - transceivers versus BOSAs

ONTs/ONUs - BOSAsONTs/ONUs - Transceivers


Another cost-cutting approach - PIC

PIC (photonic integration circuit) common in higher-end, lower-volume OC product designs

2012 – PIC and PON come together - OneChip Photonics

Monolithic PICs in indium phosphide

Integrates discrete components

Replaces optical chips and TO Can

Designed for automated assembly

No active fiber alignment

MPD

SSC

1310nm

1490nm PD

WDM splitter

OneChip Diplexer PIC

DFB laser

Source: OneChip


Maturing market – focus on ROI and operations

Revenue – bringing subscribers onto the network faster

Easier-to-install fiber

Easier-to-install ONTs

Working with building owners ahead of time

Revenue – adding services

Verizon – home monitoring, smart home

KDDI – fixed-mobile convergence, quad-play services

Monitoring and managing the ODN, such as OTDR

Reducing energy consumption of equipment


Focus on ODN management - OTDR

OTDR equipment is used:

When an optical distribution network is being built to enable adherence to various optical parameters

When a fault along the fiber network is suspected

An OTDR instrument injects a series of optical pulses into the fiber that is being tested. It extracts light that is reflected back from the points along the fiber. The strength of the return pulses is measured and integrated as a function of time and is plotted as a function of fiber length.

Source: Broadcom


ODN management – use of OTDR for PON

Ideally, OTDR functions would be installed at the OLT and at each ONU/ONT, enabling the signal to be tested along each separate split of the PON network.

But OTDR equipment is relatively large and expensive so alternative ways to use OTDR functions are being developed, such as:

OLT equipment – chassis-based or linecard-based

OLT optical module – embedded into the OLT optical module Embedding OTDR into OLT modules has technical challenges, given the size and power limitations of

the SFP (small form factor pluggable) optical module

Several OLT optical vendors have developments and testing under way

Embedded OTDR is just one step in the roadmap for improving PON network diagnostics and management.

Not clear how much service providers are willing to pay for OTDR; they will assess the costs and benefits of OTDR against the costs of fiber repair and lost service revenues.


Conclusions and thoughts

The merger of Accelink and WTD puts a Chinese OC vendor into the global “top 10” ranking.

China’s vendors dominate the FTTx market at both the equipment and optical component levels.

The FTTx market will continue to be dominated by network deployments in China, but after China, OLT port shipments are likely to decline.

OC vendors must continue to look for cost-cutting approaches and China’s vendors have led the transition to BOSAs for GPON ONTs/ONUs.

Service providers are focusing on revenues and operations, such as the use of OTDR for optical network monitoring.

China’s OC vendors have the opportunity to increase their presence in the top 10 through internal growth and acquisitions.


THANK YOU


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1.cioe september 2012 - julie kunstler - presentation - ovum

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