Ovum reveals “flat is the new up”

Global optical networking (ON) equipment spending retreated for the third consecutive quarter in 3Q12, versus the year-ago quarter, finds Ovum. Operators in troubled economies are running networks hotter in an effort to delay network projects and defer spending. Seasonal increases in 4Q revenues are expected, but market performance thus far means growth over 2012 will remain flat.

In a new market share analysis, the global analyst firm reveals that the ON market continues to contract, and vendors with strong exposure to weaker North America and EMEA markets are cutting costs and restructuring operations to ride out the current economic storm. According to Ovum global spending in the quarter dropped 1% compared with 3Q11 to $3.7bn. Spending is up 14% in Asia-Pacific compared with 3Q11, but not enough to offset declines of 11% in North America, 8% in EMEA and 4% in South and Central America.

“Preliminary analysis of 3Q12 results offers little positive news,” says Ron Kline, principal analyst network infrastructure, Ovum. “The competitive environment is challenging at the moment. Many vendors are grateful just to see their business stay flat. It will be very difficult for the market to reach the 2% growth we have predicted for the year. Now is the time to position next-generation products with operators which will have no choice but to turn spending back on in 2013.”

Ovum believes the economic malaise will continue for the rest of 2012 and into 2013 at the very least, and could get potentially worse should the US government let its economy fall off the “fiscal cliff.”

In terms of vendor performance, Ericsson, Fiberhome, Huawei and NEC were the only top vendors to post both sequential and year-over-year revenue growth. Nokia Siemens, Tellabs and ZTE posted sequential and year-over-year revenue declines, with Alcatel-Lucent’s quarterly revenues falling below $400m for the first time and its rolling revenues falling below $2bn (also an all-time low).

“With three uninspiring quarters of 2012 behind us, we are advising our clients that the global market will likely contract into the $14.5–15.0bn range, a further retrenchment from our 2Q alert guidance. A modest “budget flush” factor is included in our revised estimate but we are not anticipating a large-scale buying spree that would recoup all the ground lost in the three earlier soft quarters,” concludes Kline.

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