The optical transport equipment market has taken a slight dip this year, with revenue down 2% year-over-year for the first nine months of 2021, according to analyst firm Dell'Oro Group.

"Optical equipment revenue in China took a sharp turn for the worse in 3Q 2021," said Jimmy Yu, VP at Dell'Oro Group, in a statement. "As a result, optical revenue in China declined at a double-digit rate in the quarter, resulting in a 9% decline for the first nine months of 2021."

The downward trend is a result of lower sales in China; in the rest of the world, demand for optical equipment is on the rise and continues to exceed supply, explained Yu.

"At this rate, we are expecting a full year optical market contraction in [China]. Something that has not occurred since 2012. Helping to offset some of this lower equipment revenue from China was the robust demand in North America, Europe and Latin America," said Yu.

In the long run, the optical transport market is predicted to reach $18 billion by 2025, primarily as a result of demand for WDM equipment, Dell'Oro reported earlier this year. In addition, Dell'Oro says the ZR pluggable optics market could exceed $500 million in annual sales by 2025.

In a Q2 report by analyst firm Omdia, analysts noted that 5G investment, cloud service growth and demand for "infotainment-at-home" are among the drivers increasing demand in the optical networking market. "The twin dynamics of increasing optical capillarity and increasing end-point capacity continue to drive the optical core," said Omdia.

While demand is up, supply chain issues continue to place pressure on growth opportunities for the optical transport equipment market, said Dell'Oro's Yu.

"We estimate that Optical Transport equipment revenue outside of China grew 6% year-over-year in the third quarter. However, we believe this growth rate could have been higher, closer to 10%, if it was not for component shortages and other supply issues plaguing the industry. So, fortunately while optical demand is hitting a rough patch in China, it seems to be accelerating in other parts of the world," said Yu.

— Kelsey Kusterer Ziser, Senior Editor, Light Reading