Long Haul Has a Pulse
Whether this marks a turnaround for long haul is hard to say. The surprise gains last quarter appear to be the result of inventory depletions, equipment vendors finally using up the masses of components they bought during the bubble.
For that reason, JDSU officials weren't ready to say long-haul is back for good. "We're getting some ordering of new long-haul products, but it's very discontinuous, customer-to-customer," JDSU CFO Ronald Foster said during his company's recent earnings call. "I don't believe we are seeing the full demand flowing through to us yet, because of inventory still out there."
Avanex CEO Walter Alessandrini is a bit more assertive: "In general, everybody believes long-haul should have signs of growth, maybe moderate growth, next quarter."
The truth might be closer to JDSU's side, because it's unclear what the inventory situation is out there. "We've been operating on the assumption that the equipment people should have sorted out their inventory more or less," says Tom Hausken, analyst with Strategies Unlimited. But one question is whether the component vendors still have inventory stashes, he says; depending on that answer, inventories might continue to keep long-haul revenues down.
Still, long-haul is showing some signs of life. JDSU CEO Kevin Kennedy told analysts some portions of long-haul networks really are filling up, albeit on a spotty basis, thus creating new demand. "We did see some pickup, on a select case-by-case basis, in a few spots where we didn't anticipate," he said.
Separately, projects such as Japan's fiber-to-the-home buildouts are contributing small bits of new demand for long haul. "There's a segment here and a segment there, and it adds up. Even these onesie-twosie builds add up to something," Hausken says.
Amplifiers are actually doing well with the FTTH projects in Japan. "It's turned out to be quite a good business for those guys," Hausken says. "One guy told me he sees two to three times more business in amplifiers than they did at the 'coldest part of the winter.' I'm taking that to mean the first or second quarter of this year."
Hausken didn't share forecasts for long-haul components specifically, but he says it's feasible the segment could grow in 2004, based on the fact that long-haul equipment sales are expected to grow. He cited some DWDM figures from sister research firm KMI Research that state that market should increase to $3.1 billion in 2004 from $2.75 billion this year.
For another perspective, check out Bandwidth Price Revolution, in the latest issue of Light Reading Insider, Light Reading's paid subscription research service (see Report: Bandwidth Glut to End in 2005).
— Craig Matsumoto, Senior Editor, Light Reading