As high-speed network infrastructure rollouts and datacenter builds continue, the optical components and systems sectors are delivering ever more efficient transport capabilities. Fueled by the continued migration to all-optical networks, the promise of 100G, and the increasing volume of data being shipped around the world's wide area networks, global investments are climbing. (See 100G Action Spurs Optical Optimism.)

So how's the optical transport market doing? And feeling?

Light Reading asked a number of industry leaders and analyst about what they saw in 2013 and what they're expecting in 2014. There were shining stars in 2013, as there will be in 2014, but also some pockets of the market that just aren't going to move.

Optical transport systems
According to Sterling Perrin, senior analyst at Heavy Reading , "optical transport is a tough market. It's competitive and there is nowhere near the growth of the past -- and we won't see that growth in the future. The area is fragmented, there are a lot of players and, while network traffic continues to grow rapidly, operator revenues can't keep pace. The mission of transport is to lower the cost-per-bit for operators, so the suppliers live in a world of constant price-cutting."

According to Perrin, what growth there is can be found in the core network transport market, which will outperform the overall market in the coming years. Heavy Reading expects the market for core optical transport system to grow from US$4.6 billion in 2013 to almost $5.9 billion in 2017. By contrast, the metro systems market is somewhat stagnant.

Beneficiaries of the growing demand for 100G systems include the top four players -- Alcatel-Lucent (NYSE: ALU), Huawei Technologies Co. Ltd. , Ciena Corp. (NYSE: CIEN), and Infinera Corp. (Nasdaq: INFN) -- and, to a lesser extent, the next tier of vendors, including Cisco Systems Inc. (Nasdaq: CSCO), Coriant , and Ericsson AB (Nasdaq: ERIC).

"The strength of core networks accounts for the strength in North America, which grew 13% in 2013, faster than the 10% overall market growth. China is slowing, but still showing growth," says Perrin. "India is a wild card given the political situation over the past couple of years. I thought it would have done better in 2013, but at some point, it will be an opportunity," he adds. (See 'China Hockey Stick' to Sweep Through Optical.)

For the coming year, Perrin identifies a number of trends in components, including: continuing strength in 100G and core networks in general; flex grid or flex spectrum; and ROADMs, which are beginning to do well.

Finisar sees a bright light
For optical transport systems that employ WDM, there are a handful of key component suppliers, namely Finisar Corp. (Nasdaq: FNSR), JDSU (Nasdaq: JDSU; Toronto: JDU), CoAdna Photonics Inc. , and Nistica .

Jerry Rawls is exuberant when he talks about the progress of Finisar, where he is executive chairman. "2013 was an exciting year. It was the company's 25th anniversary and the first year ever that the company hit $1 billion in revenues," he says.

"The trend is to develop faster interconnects and optical transceivers for datacenters. Until recently, 1Gbit/s datacenters were copper, cat cable, RJ-45 jacks. In just three to four years, based on advances in speed, 1Gbit/s moved to 10Gbit/s, which is optical, not copper," Rawls explains.

Finisar is clearly expecting high demand, as it is expanding manufacturing, building a 400,000 sq. ft. facility in China, as well as other facilities for 10Gbit/s and 40Gbit/s. The latter will continue to show strength, according to Rawls, as the cloud datacenter transitions to 40Gbit/s. The company expects to see increasing demand from the US, China, and Europe.

As for the future, Rawls says the metro transport market isn't having much impact yet on a revenue basis, but as systems are launched for metro, accounting for 3x to 5x volume increases, that will likely trigger a new multi-year trend. Line cards will be optimized for metro, size, power, specs and cost, and lower cost for metro will drive business as well, Rawls believes.

And clearly, Finisar is gearing up for greater demand for 100G products. (See Finisar Buys Its 100G Buddy.)

On the subject of M&A, the Finisar man notes a shift in the optical equipment sector. "An interesting event was the privatization of NSN and Tellabs under Coriant by Marlin Equity. This was a private equity deal rather than a consolidation of systems companies. That's a new chapter of consolidation at the transport level," notes Rawls.

Next page: Datacenter drivers for NeoPhotonics, JDSU

Datacenter drivers for NeoPhotonics, JDSU
Tim Jenks, the chairman and CEO of NeoPhotonics, says 2013 was a transition year, with 100G products being shipped in volume. During the year market demand for cloud computing services expanded, and the supporting infrastructure took form.

While 10Gbit/s and access were not comparatively strong, says Jenks, demand was driven by datacenter deployments and the need for high-speed optical links between enterprises and the cloud, and as a result the 100G market is growing fast.

"In 2014, 100G will continue to ramp up and strengthen, and the metro will turn on this year and become a strong market. FTTH access, however, will be flat. North America is looking better than expected because of Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T), so the first half of the year will be in good shape. In China, deployments discussed in 2013 will continue [to be strong] this year," he adds.

JDSU's Doug Alteen, vice president of product line management, optical communications, believes the momentum the company saw in 2013 in datacenter, 10Gbit/s to 40Gbit/s, and with its TrueFlex products, will continue in 2014. (See JDSU Sees Growth in Optical & SPIT.)

Geographically, the company is experiencing growing demand in North America, China, and Japan, and also sees pockets of opportunities throughout Europe. JDSU feels it has good visibility wherever customers are deploying globally.

"JDSU is known for its ability for functional integration, and this continues to be an advantage in the telecom space. 100G will continue to deploy, and we will see growth in telecom and datacom. In addition, we have a growing interest in 3D sensing and gesture recognition," Alteen says. [Editor's note: Next time we meet JDSU, we'll try out some gesture recognition… we're talking nice gestures, though, OK?]

Expanding market
Finally, Simon Stanley, founder and principal consultant at Earlswood Marketing Ltd. and Heavy Reading Analyst at Large, indicates that in 2014, demand for 10Gbit/s Ethernet components will continue to grow and that the 100G market will be stronger than ever, with the ever-expanding datacenter sector and the emergence of the 100G metro market being catalysts of note.

He cautions, though, that any expectations concerning software-defined networking (SDN) should be tempered. Interest in SDN is certainly growing, especially in the datacenter sector as well as the telco market, and "we'll soon see small-scale deployments." However, "the gap between concept and what people are expecting is still big," notes Stanley.

According to a recent Heavy Reading report, "From 40/100G to 400G: A Competitive Analysis of Optical Modules & Components", there are still significant challenges associated with the demand for 100G interfaces. CFP4 and QSFP28 require highly integrated components, and several vendors will have modules launched in 2014. In addition, the demand for pluggable modules for the metro market is driving significant investment in both direct detect and coherent products, he notes.

And next up? Why, 400G, of course. (See 100G Revenue Drives 400G Investment.)

— Carolyn Mathas, contributing editor, special to Light Reading