After years of practicing Stuart Smalley-type self-affirmations, the optical industry is feeling better about itself again. With the Optical Fiber Conference (OFC) under way in San Francisco, optimistic reports are coming in as data-center and service-provider demand pumps up optical suppliers.
No, it’s not exactly OFC 2000 in Baltimore (anybody remember that?), when optical networking froth was creating huge valuations in public and private companies, just as the telecom industry was on the precipice of collapse. But muted optimism is better than unbridled optimism. The flip side may have been the desolate, and empty OFCs in the 2001-2003 era.
I didn’t make OFC this year, but reports I’m getting from analysts on the ground indicate the mood is buoyant as the share prices of companies such as Ciena, Finisar, and JDSU are rising again, boosted by steady demand for optical technology.
“Similar to Day 1 we continued to hear about recent order improvements (over the past several weeks) and near-term stock outs and capacity constraints for key Optical components/modules, including 40G QSFP+ transceivers for Datacom applications, modulators, receivers and lasers for 100G Telecom applications and tunable 10G Telecom lasers,” writes Michael Genovese, Managing Director with of MKM Partners.
These stories benefit names such as Ciena, Finisar, Infinera, and JSDU, all of whom stand to benefit for a pickup in optical orders, wrote Genovese.
As Genovese points out, the optical vendors have the luxury of avoiding the war in Software-Defined Networking (SDN) and Network Function Virtualization (NFV). SDN and NFV are data-driven technologies. Because optical technology sits below the data stack, it actually enables SDN and NFV, rather than being threatened by it.
“Value is shifting to Optical equipment and SDN WAN Controllers are likely to be modular and multi-vendor, allowing Ciena’s software to maintain its place in customer networks,” writes Genovese in a research note.
Simon Leopold of Raymond James found similar themes at OFC, and he also uncovered growth stories in cable and China.
“The recurring themes were datacenter adoption of optics, the 100G transition to metro from long haul, China projects, and cable TV,” wrote Leopold in a research note yesterday. “We left our discussions constructive on Finisar due to its focus and lead in datacenter optics and under-appreciated position in China; and we also believe that JDS Uniphase has opportunities for growth in datacenters and from China.”
China Mobile’s upcoming fiber-optical buildout has generated some excitement, says Leopold, though the exact timing is unclear.
Leopold wrote that JDS Uniphase has indicated progress at China Mobile, while other suppliers sound more cautious, “pointing to a second half of the year for a ramp.”
Finisar has good upside in China in both 100G and data-center projects, wrote Leopold.
Indeed, the major optical stocks have been undergoing, steady, if choppy growth, and they appear to be good buys on pullbacks.