MOUNTAIN VIEW, Calif. -- The telecom laser and transponder market stands to grow over 30% in 2003, largely due to the continued installation of line cards into existing systems, drawing down inventories. However, with dozens of suppliers competing for a share of the pie, prices and margins will remain squeezed for industry participants, according to a new report by market research firm Strategies Unlimited. The report, Telecom Lasers, Transceivers, & Transponders: Market Review and Forecast--2003, analyzes the market for telecom laser products for every major telecom network application, and compares installation and shipments for the overall market. "Traffic is continuing to grow, albeit more slowly, and prices will stabilize enough for revenues in this market to grow beginning in 2003," says Tom Hausken, Optical Communication Components Practice Director at Strategies Unlimited. "But, there is only business for a few key suppliers, plus some additional niche players. The longer it takes to consolidate, the longer will be the pain." In some respects, the laser market has fared better than many other optical components during the current industry downturn. Laser products are installed into systems not only as new systems are installed, but also as new DWDM channels are added to existing systems. Consequently, laser manufacturers have not experienced the extreme swings seen by manufacturers of fiberoptic cable or optical amplifiers. Additionally, average selling prices (ASPs) of lasers generally have scaled upwards as the data rate of those lasers increased, since higher data rate lasers are expensive to package. ASPs for many passive optical components, by contrast, have risen only modestly with new generations of systems. Integration of new features into functional blocks, or transponders, provides a higher revenue opportunity for many players in the 10 Gbps and 40 Gbps markets. While their overall penetration into the market is limited, these products sell for higher prices, and also scale well with data rates. However, the industry remains plagued by inventory buildups that occurred during the initial phase of the industry downturn. As of the end of 2002, excess inventories remained for products aimed at the long haul market, such as continuous-wave lasers on the ITU grid, thus depressing sales of laser diodes. Products in the best inventory position are metro transceivers and newer products such as coarse wavelength-division multiplexing (CWDM) lasers. Despite slow sales, the number of suppliers has expanded far beyond any reasonable value, to over 100. This is clearly excessive, even for this diverse market, and even allowing for a healthy number of start-up companies as candidates for acquisition. So far, there have been few consolidations or closures in this market segment. Strategies Unlimited