[wp_tech_share]

It was a great year for the Microwave Transmission market in 2022 due to the growing demand for wireless mobile backhaul (MBH). In fact, following an 11% growth in microwave MBH revenue in 2021, the market is expected to grow an additional 8% in 2022, based on the data we have collected so far in the first nine months of the year. Unsurprisingly, this demand for microwave MBH equipment is being driven by 5G, since operators are either preparing their networks to deploy 5G or are actively installing a 5G network.

We believe 5G will continue to be a market driver in 2023 and, as a result, project another year of single-digit percent growth. However, we anticipate two significant changes in the Microwave Transmission market to occur this year.

The first is the return of the India market. India is one of the countries with the largest use of microwave equipment for MBH, making it a crucial element to the overall market size. During the peak 4G deployment cycle, more than 20% of all microwave radio transceivers were shipped to India. Since then, deployments have considerably shrunk with the declining installations of new 4G base stations. This, however, is expected to reverse because the country has just concluded the auction of 5G spectrum and will ramp microwave deployments for 5G MBH through 2023. Hence, we are expecting India to be a major contributor to the overall market once again.

The second change we are expecting to occur in 2023 is the use of E-band systems in India. Although a large share of MBH in India is achieved through wireless backhaul systems, E-band systems were never used since the spectrum was unavailable. This will change in 2023 since the E-band spectrum has been made available with the 5G spectrum auction, and the standard microwave frequencies such as 13 GHz and 15 GHz are congested due to the large number of 4G base stations using them. Therefore, we anticipate a very large use of E-band systems in India to begin this year, with a number of vendors having already been awarded E-band equipment contracts in the country.

2023 should be another great year for the Microwave Transmission market.

[wp_tech_share]

Knock on wood (if you are superstitious), but it seems like the worst is over for the Optical Transport market as we enter 2023. To recap…. in 2022, there was a pandemic with city-wide COVID lockdowns in China, war in Ukraine with economic sanctions placed on Russia, rampant inflation with spiking fuel prices, global economic slowdown, and component shortages. It was, in short, a tumultuous year.

While in most years the occurrence of one or two of these events would cause a sharp decline in the optical market, no such incident occurred this time. Through it all, the Optical Transport market at the global level held strong, and we are predicting it will decline at most by 1% in 2022. Things are, of course, different at the regional level, considering the war occurring in Europe and COVID lockdowns in China. Based on results for the first nine months of 2022, we believe Europe is on track to decline by roughly 15% and China by approximately 3%. We should note that most of the decline in Europe is due to a lower currency exchange rate compared to the US dollar. Therefore, on a constant currency basis, the market contraction in Europe was actually small. Offsetting much of the declines in these two regions is the higher revenue in North America, which we expect will grow at a double-digit rate.

For 2023, we remain somewhat optimistic that optical revenue will increase even as global macroeconomic conditions worsen. Specifically, we are expecting that component constraints will ease, and vendors will be able to fulfill customer orders that have been placed into their swelling backlog. Even in the Western European region, which is under a large amount of distress because of the war and high price of energy, there does not seem to be a significant slowdown in 2023. In fact, many optical vendors have stated that they do not see an impact from the eroding macroeconomic conditions in Western Europe at this time. Also recently, the rate of inflation is decreasing, and China has moved away from a zero-Covid policy, which should end the city-wide lockdowns that slowed the country’s economy and amplified certain supply issues.

Our biggest concern with 2023 is the uncertainty of vendor backlog. While backlog has grown and orders have exceeded revenue for the past few quarters, it is not clear to us what the duration of the backlog will extend to. That is, will customers begin to delay system delivery to a later period when their concerns of supply wane later this year?

In addition to having the worst of the conditions behind us, we are excited about the entry of a new higher-speed capable coherent DSP. Cisco, through its Acacia acquisition, is planning to have a single wavelength 1.2 Tbps-capable module available in early 2023. We have not heard what either Ciena or Infinera have planned for their next-generation coherent DSP, but we expect some news in early 2023—something to look forward to.

Although I am not superstitious, I am knocking on wood, to help ensure the worst is over.