INDUSTRY

PROVIDENCE, RI -- The worldwide market for dense wavelength-division multiplexing (DWDM) transport equipment will decline 14% in 2001 to $7.1 billion, according to KMI's latest report, DWDM Markets in Transition. The market will resume growth in 2002, but growth rates will vary sharply by geographic region and by application. The new KMI study updates the findings of KMI's report on worldwide markets for DWDM systems, completed at the end of November 2000. Shortly after publication of that report the market changed substantially, with an extreme dampening of the market outlook for 2001. KMI places the strong growth in DWDM spending in 1998-2000 and the subsequent decline in 2001 within the perspective of network building cycles. With the Internet boom starting about 1995, bandwidth demand skyrocketed and new long-distance carriers entered the field by building nationwide long-distance networks using the latest optical fiber and equipment technologies. The market for DWDM systems nearly doubled in both 1999 and 2000, from $2.3 billion in 1998 to $4.2 billion in 1999 and to $8.3 billion in 2000. With most long-distance network build-outs completed by the end of 2000--with capacity sufficient to meet growing demand--greenfield equipment deployments slowed dramatically in 2001. Carriers typically light only a fraction of capacity on newly deployed systems, so equipment installed in one year will not be filled for several years. With the massive deployments that occurred in 1999 and 2000, 2001 and early 2002 will be slack times as carriers simply fill up unused capacity with channel-card deployments. The overall market figures mask the difference between buying new systems and adding channel cards to previously deployed systems. The systems market will decline by 26% in 2001 from $5.6 billion to $4.1 billion. In contrast, the channel-card market will grow 9% in 2001 to $3 billion. In 2001, the DWDM market is also experiencing wide variations by vendor, application, and geographic region. At the extremes of vendor experiences, KMI projects that Nortel will see a 50% decline revenues, but CIENA's business will grow 50%. By application, the worldwide market for long-haul DWDM systems will fall 23%, but the short-distance market (primarily metro) will grow 63%. Established markets in North America and Europe will fall 23% from $7.8 billion in 2000 to $6 billion, while emerging markets in Asia-Pacific and the rest of the world will experience a doubling of the DWDM market, albeit from low levels. Using moderate bandwidth demand assumptions, KMI estimates that average DWDM systems deployed in 1999 and 2000 will fill to 60%-70% of capacity at staggered rates through 2002 and early 2003. Carriers usually plan new systems deployments before capacity utilization reaches 70%. Thus, KMI forecasts a slow rise in DWDM revenues in most markets beginning in 2002 and accelerating into 2003. From 2001, the worldwide market (for systems and channel-cards combined) will grow at a compound annual growth rate (CAGR) of 34% to reach $23.2 billion in 2005. DWDM Markets in Transition also analyzes: -- Contract announcements in the first half of 2001 vs. the first half of 2000, by region, application, and value. -- Projected vendor market shares, 2001. -- Relationship between bandwidth demand and channel card sales. -- Market estimate and forecast for DWDM systems and channel cards, 2001-2005, by application and by geographic region. -- Market estimate and forecast for major subsystems (transmit-receive, multiplex-demultiplex, and amplifiers) through 2005. -- Price trends for systems and subsystems through 2005. For more information visit www.kmicorp.com