May 2021 Research Note on 1Q21

LightCounting published a Research Note summarizing reported Q1 results for ICPs, CSPs, equipment and component vendors in the optical networking ecosystem.

Results reported for Q1 2021 thus far were mostly positive, although year-on-year sales growth comparisons were boosted in many cases by COVID-related sales deficits in Q1 of 2020. Sales were down from Q4 2020 in most cases, due to normal seasonality.

On the ICP front the top 5 infrastructure spenders – Alibaba, Alphabet, Amazon, Facebook, and Microsoft all posted sequentially lower revenues in Q1 2021, coming off of all-time record sales in Q4 2020, but even so sales for the group were 40% higher than Q1 2020. Alibaba, Amazon, and Microsoft also posted large increases in spending on infrastructure versus Q1 2020 (99%, 78%, and 35% higher, respectively), while Alphabet held spending flat, and Facebook was 25% below the year-ago level.

Datacom equipment vendors appear to have benefitted from the growth in ICP spending, with aggregate revenues for those reporting up 32% over the year-ago quarter. Telecom equipment makers (excluding Huawei and ZTE, who have not reported) saw revenues rise 10%, partially as a result of Huawei gear being replaced in several European countries.

Optical components vendors had a more mixed bag of results. Delays with 5G deployment in China, geopolitics, and 3D sensor business dynamics all played a role. Lumentum revenues declined 12% sequentially in Q1 2021 and the company gave guidance for another 10% decline in Q2 2021. II-VI reported only a 1% sequential decline in Q1 2021 revenues and 25% growth y-o-y. The company closed the quarter with a record $1.13 billion backlog. However, revenue guidance for Q2 ranged from 4% decline to 3% growth due to stress in the supply chain and continuing COVID-19 restrictions.

Accelink and Innolight reported steeper than expected declines in Q1 2021, mostly because of delays in 5G deployments in China. On the other hand, Eoptolink set a new record with Q1 2021 revenues just under $100 million. The Chinese vendors do not provide any guidance, but we expect them to report stronger results in Q2 2021.

Deployments of 100GbE by Chinese cloud companies and 400GbE by Amazon and Google will keep the market for optical transceivers in the positive territory this year. The strong demand for coherent optics and the first sales of 400ZR will also help, as detailed in our latest Market Forecast Report.

Semiconductor makers revenues in total rose 20% y-o-y and some companies saw revenues grow at much higher rates, with AMD up 93% and Qualcomm up 52%, while major player Intel (Data Center Group), saw a significant revenue decline (-20% Y/Y).

Some common threads running through the various company reports remind that the industry still faces headwinds for the balance of the year:
• Semiconductors remain in short supply and are restricting some vendors’ ability to deliver products.
• The US trade war against Huawei continues to reshape the industry resulting in share gains by companies like Ericsson, ADVA, and Nokia.
• Delayed 5G deployment in China impacted many vendors in Q1; most are expecting a pickup in the near future.

The US economy appears to be surging as COVID-19 restrictions fall away in the face of mass vaccinations and trillions in stimulus money works its magic. Too much of a good thing can be harmful of course, and shortages of goods and materials are having an inflationary impact. The Federal Reserve assures us the inflationary pressure is temporary, as they must, least unchecked inflation fears make it a self-fulfilling prophecy. Of course, the rest of the world has other problems, with India still in the thick of a deadly COVID battle, and the Middle East once again teetering on the brink of open warfare. While the initial Q1 2021 results suggest a strong 2021 for the optical industry, we must remember that there are larger forces at work and temper the optimism with caution.

This article is excerpted from LIGHTCOUNTING，please click below link to get detail:
https://www.lightcounting.com/research-note/may-2021-research-note-on-1q21-results-140