LONDON – The global optical networks market will exceed $17.5 billion by 2018, for a 3.1% CAGR from 2012, says Ovum.

A strong second quarter has signaled the beginning of a spending bounce-back, the research firm says.  The second quarter of 2013 was the strongest quarter in the last six quarters and was the seventh highest quarter in the last 10 years.

Global ON is projected to be up 1.1% in 2013 compared to 2012 based on growth forecasts for North America, SLTE, Asia-Pacific and South and Central America.

“Ovum’s 9.1% growth projection for North American ON sales in 2013 signals a solid bounce-back year after two years of non-growth,” says Ian Redpath, analyst, network infrastructure. “Network core investments are resuming and 100G is being deployed in volumes. The North American tier-1 communications service providers and cable operators are investing in their core network to support all traffic types."

Meanwhile, submarine line terminating equipment (SLTE) sales are projected to achieve growth of 3.3% after four down years. In the Asia-Pacific region, strong growth in China, with help from the ASEAN-5 countries (Indonesia, Malaysia, Philippines, Thailand, and Vietnam) and Australia and New Zealand (ANZ), will mitigate projected market declines in Japan and India. Ovum’s growth projection for Asia-Pacific ON in 2013 is 3.1%.

South and Central America ON revenues are projected to grow 1.6% this year. ON spending in SCA has passed the $1 billion mark, and Ovum is projecting that level will be maintained as the SCA economies continue to grow and diversify.

The Europe, Middle East and Africa (EMEA) region remains mired in an economic malaise, the firm says. “We expect 2013 ON sales to come in at a dismal negative 9.6% versus the 2012 level,” says Redpath. “Spending has been down in four of the past five years, and under-investment in the region is becoming more acute. At some point, the CSPs will have to resume buying to make up for this prolonged period of under-spending.”

The technology trend for the forecast is the ascendancy of 100G, whose revenues exceeded 40G sales for the first time in the second quarter of this year. 100G spending was up 233% year-over-year in the first half of 2013, achieving $1 billion in revenue, while 40G was down 24% during that period, with revenue dropping to $942 million.

“Nearly all new large-scale, long-haul optical networks designed and deployed today will be 100G. 100G has assumed the lead position and will not yield within our forecast period. Two positive market trends are emerging at the same time. The first is a need for the CSPs to refresh network technology after a long period of running core networks hotter and delaying investment. The second major trend is the maturity of 100G technology to the point where CSPs have begun deployments at scale,” says Redpath.

“Ovum’s most likely forecast scenario to 2018 projects strong positive growth in North America. Modest growth is projected for Asia-Pacific as a whole, with strong growth for ASEAN-5 and ANZ, moderate growth for China, and low growth for Japan and India. The growth expectations for Europe are a mixed:  down in 2013, modestly positive in 2014, and then more vigorous gains for 2015 and beyond.”