Lightcounting Optical Market Report - Positive Outlook for Optical 2013 - 2017
Lightcounting is an optical research company who just published a report on the optical market 2013-2017 predicting that the second half of 2013 will start a new upcycle for the optical industry based on carrier plans and strong data center growth. Basically, the growth of video and data traffic will require new buildouts of optical 40G and 100G networks. If you are an investor in Oclaro, then an upswing in optical later in 2013 is the rising tide needed by Oclaro and all the optical vendors after a tough 2012. There is a summary of the report at lightcountingdotcom.
The question is whether that optical upswing comes in time and in magnitude to save Oclaro. It is very likely that Oclaro will need by mid 2013 more predatory PIPEs and/or asset sales. Remember that even in the previous cycle, Oclaro profits were meager and lasted only a couple of quarters. This is a very risky investment. Here you might lose all your money or triple it, odds favoring the loss. In contrast, if you buy FNSR or JDSU you might lose 20% of your investment or double it, odds favoring the gain. IMO, only the most risk tolerant and ardent gamblers should buy Oclaro, and only after a general market correction that might take OCLR close to $1 or even below.
Valid points and thanks to all for all the insightful discussions we have had here for several years.
While some of these risks have been hashed over, its still remains to be played out, so I'll recap and then mentioned some new developments I recently came across.
Successful new product ramps is the one and only key to profitability for the pure play OC vendors. They must realize sufficient volume on their high end modules and transceivers, not lasers, modulators and isolators to stay above water. When JDSU discusses revenues for components, they often break it out the percentage for those two years and less as older products carrier very thin margins.
In the prior ramp, Oclaro was disadvantaged by the rapid transistion from 300pin to the smaller pluggables where Finisar and others were dominant with advantages of lower costs and shorter lead times. Although the new cycle will lift all boats, there's that big question mark over how much of the high end market will be available to the component vendors. The merchant market for 100G coherent modules is still comprised of 2nd and 3rd tier OEMs, with 60-70% now firmly in the top tier's domain.
Cisco commands an even larger share of the addressable 100G datacom market and if their CPAK is successful, it will be a huge blow to FNSR and others. This is a significant market for Ocalro and JDSU as well. And, if Intel rolls out its disruptive 100G silicon chip in 2014 (there are comments that they have spent the past two years overcoming the challenges of manufacturing and have mastered the complicated process) which integrates hundreds of piece parts into a single chip....there's no question it will blow away the CFP design with the most important product features...lower cost, power, and smaller size. Its still an IF, but hey, we are talking about Intel here, not some little VC funded start up.
Also, both Cisco and Intel have already rolled out their own connectors to compete with existing MPO connector for highly parallel optics and some are saying Intel, IBM & Avago aim to completely eliminate all current panel mount transceivers module such as QSFP+, CFP, etc. which is another big threat to many component & module suppliers.
So, the (high) risk runs across the board for the optic players, top to bottom.