The one thing that you can always count on with technology is that it is always changing, and these movements also bring with it a change as to how and who uses it. We live in a world where everyone is always connecting, sharing more and more information every day.
The fact that more people, objects and devices are connected with each other every day means that more data is out there and is available. Ciena sees information as the lifeblood of a business and something that needs to be collected, stored, protected and most importantly, is easily accessible.
Although it can be easily reached, time is of the essence, so in 1965 the first working fiber optical data transmission system was demonstrated by German physicist Manfred Borner at Telefunken Research Labs in Ulm. Fiber-optics dramatically increased the speed of transmitting data from the server to the workstation.
If you watch TV commercials you will notice that a lot of phone companies and cable providers tell you how much of their networks are composed of fiber optic lines indicating that you will have faster speeds. According to Ciena, there was a time when as much as 70 percent of revenue was generated by phone companies; today that number is down to about 30 percent.
The focus has shifted and it is now Internet companies like Google and Facebook (News - Alert) that have become big buyers of optical components and system-level products. They use these systems to keep their data centers housing racks of computer servers connected through high-speed telecom networks.
This has changed the market, and the current hot topic concerning fiber-optic company earnings calls is for data center interconnect (DCI). According to analyst firm Ovum (News - Alert), revenues for DCI continue to grow at a rapid pace.
A recently completed market study found that 2014 revenues grew more than 16 percent from 2013. Nearly half of all DCI spending in 2014 was from communications service providers (CSPs), but the Internet content provider (ICP) segment grew 64 percent on the year. They forecast that this year’s capital spending by ICPs will rise 18 percent to $67 billion.
Dmitry Netis, analyst at William Blair, remarked that "When the data center opportunity popped up, with Web-scale guys like Google (News - Alert) building their own data centers, there weren't optical products that would fit that cloud infrastructure model. DCI is the answer to that for the optical transport side of things, designing a box sitting directly in the server rack, optimized for size, optimized for power dissipation and shooting out the data traffic at high speed.”
Last year in September, Google invested in China-based InnoLight. This is a company which makes high-speed optical transceivers used by computer servers. It seems that smaller suppliers grew faster than larger vendors in 2014. The factor seen by market research firm LightCounting as the cause was demand from datacenter customers and upgrades to optical technology.
Another interesting aspect to look at is whether this will spur companies to merge. Mark Sue, an analyst at RBC Capital Markets, commented that the fiber-optic components sector is in dire need of consolidation so that companies can improve profit margins. Are mergers and acquisition the route that will be followed?
Edited by Rory J. Thompson