The fibre optics industry is young but has already been through some unpredictable disruptions and it's probably safe to assume there will be further unexpected developments making it difficult to predict what will happen in the future. The next two years will see a reasonable recovery in the market and a bit more consolidation among the companies. Due to acquisitions taking place now, companies will have the opportunity to move into new markets.
The fibre optics industry as a whole can make some strategic moves to increase its value across the board. If companies within the industry would collaborate more, then ideally technology would move forward creating solutions that deliver a higher value to customers and users resulting in a prosperous situation for everyone. Some of the basic economics of our business may change due to new developments in silicon, the integration of parts on a common substrate, or co-packaging parts that are made from different material systems.
Some things won't change much in the next couple of years. Many of the technologies we have today are meeting the industry's needs. There will be further price erosion.
The division in the marketplace between the types of capabilities companies provide may be noticeably different depending on the degree of success companies achieve in taking advantage of new opportunities. Some companies may be thinking about this and change their core skill sets to harvest these opportunities and build a successful business. The more opportunities the industry can provide to the carriers to produce revenue generating services for the end business user, the better off we're all going to be.
Expanding the use of broadband is a critical issue relative to increasing network utilisation and installing new networks. As more businesses obtain broadband access and raise their productivity levels, the economy will benefit. Wireless technologies, fibre to the home and fibre to the pedestal add more traffic on the backbone, the servers and the rest of the infrastructure. All of this will help Internet traffic to rapidly increase in the coming years. The combination of all of this enhances traffic on the optical infrastructure creating a need for more optical components.
There are significant trends for the optical telecommunications business within long haul and metropolitan area networks. One of these is within the shorter-reach portions of these networks, on the client side, where a lot of the products are transceivers only and are becoming commodities.
On the long reach side of the network there is a tendency for OEMs to focus more on networks and software and to outsource more of the hardware capability compared to what they were outsourcing three years ago. Now there are new opportunities for companies to supply more value to those OEM customers by serving as a contract manufacturer and/or designing and fabricating new boards or circuit packs. One opportunity for component companies is to supply value-added assemblies to the telecom OEMs.
OPTICAL CHIP FACILITIES
Substantial investments have been made in the industry to build the optical chip fabrication facilities that manufacture fibre optics components. The industry needs to maximise the use of these very expensive resources. The fabrication facilities today that are serving as foundries have to become more versatile and expand into new areas. The current foundry model requires a great deal of coordination between designers, device physicists and material scientists or staff at the component companies and their counterparts at the foundry to get an acceptable product that meets the user company's requirements.