Survey Points to Chinese Strengths

Chinese optical component vendors are sometimes characterized as outfits that stick to basic passive products, the stuff that can be churned out in large volumes where labor costs are low.

That perception is wrong, judging by the results of Heavy Reading's 2004 Optical Components Market Perception Study, which indicates that buyers of optical components tend to over-estimate the capabilities of Western component manufacturers and under-estimate those of their Eastern counterparts.

The survey is based on responses of 301 buyers, who reviewed a total of 40 manufacturers of optical components and subsystems, a good proportion of them being based in China (see Survey Punctures Components Myth).

One of the questions asks buyers to give their perception of the breadth of each manufacturer's product portfolio.

Not surprisingly, nearly two thirds of respondents say JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) had a "complete or nearly complete product portfolio," which reflects reality -- JDSU has products in all eight categories in the survey.

However, with other Western vendors, there are big differences between perception and reality. For instance, just over a quarter of the 93 respondents who claim to be familiar with Infineon Technologies AG (NYSE/Frankfurt: IFX) think the company has a "complete or nearly complete product portfolio". In fact, it only has products in two categories: lasers and transcievers.

At the other end of the scale, not a single respondent thinks China's O-Net Communications Ltd. has a "complete or nearly complete product portfolio" when in fact, it has products in seven categories.

Table 1: Buyer's Perception of Selected Vendors' Product Portfolios

	Country	Percentage of respondents saying that company has "complete or nearly complete product line"	Number of categories in which company actually has products
JDS Uniphase Corp.	US	61.4%	8
Bookham Technology plc	UK	38.5%	4
Avanex Corp.	US	34.8%	6
Sun Telecommunication Co. Ltd.	Taiwan	33.3%	5
Agilent Technologies Inc.	US	33.1%	4
NEC Corp.	Japan	26.9%	5
Koncent Communication Inc.	China	26.3%	7
A&T Technology Co. Ltd.	China	26.2%	6
Infineon Technologies AG	Germany	25.8%	2
Alliance Fiber Optic Products Inc. (AFOP)	US	25.0%	7
O-Net Communications Ltd.	China	0.0%	7
Source: Heavy Reading's 2004 Optical Components Market Perception Study

To be fair, having products in seven categories in the Heavy Reading survey doesn't necessarily indicate a wide product portfolio, because it's possible to achieve this with just one or two low-end products in each category.

All the same, some Chinese vendors don't get recognition for having a greater depth of products than their Western counterparts in some categories. An example of this is given in the table below, which shows how selected manufacturers stack up in the optical transceiver market.

Table 2: Optical Transceiver Comparison

	PERCEPTION	REALITY
	Percentage of respondents thinking company has products	Number of products company has in this category
Agilent Technologies Inc.	56.3%	4
Bookham Technology plc	38.8%	4
Avanex Corp.	22.3%	4
Fiberxon Inc.	18.4%	6
Wuhan Telecommunication Devices Co. Ltd.	9.7%	8
Shenzhen Photon Technology Co. Ltd.	5.8%	5
Source: Heavy Reading 2004 Optical Components Market Perception Study

This table shows the percentage of respondents that identified the vendors as manufacturers of transceivers.

As might be expected, Agilent Technologies Inc. (NYSE: A), Bookham Technology plc (Nasdaq: BKHM; London: BHM), and Avanex Corp. (Nasdaq: AVNX) got the highest recognition ratings.

Fiberxon Inc., a Chinese vendor with its HQ in the US, gets slightly lower ratings, while a couple of 100 percent Chinese companies Wuhan Telecommunication Devices Co. Ltd. (WTD) and Shenzhen Photon Technology Co. Ltd. -- get much lower ratings, even though they offer more products. (The product count is based on the product groupings used in the report, Who Makes What: Optical Components 2004, which breaks out transceivers according to application).

It's also worth pointing out that Wuhan Telecommunication Devices has a larger share of the components market than Agilent, according to research by Strategies Unlimited (see Could Components Rebound in 2003?).

Heavy Reading's 57-page report, 2004 Optical Components Market Perception Study, costs $2,950. For more details, click on the link.

— Pauline Rigby, Senior Editor, Light Reading