At the China International Optoelectronic Exhibition 2012, our LightCounting analyst team presented this market research data. It highlighted the profitability (or lack thereof) of optical component suppliers.

1. Profitability
of the optical component
suppliers (or lack of it)
Dr. Vladimir Kozlov
LightCounting, LLC
September 2012
LIGHTCOUNTING 10/30/2012 1
Market Research on High-Speed Interconnects
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

2. About LightCounting
Products and Services
• Market Update and Forecast
Reports
• Quarterly and Annual sales
databases
• Focus reports on
• 40/100G interconnects
• AOCs
• 10GBASE-T
• Continuous Information service
• Consulting projects
• LightCounting reports and service products are designed to help executives plan and run
their businesses. We support decision making based on facts and data.
• Our research covers the entire supply chain including components, modules, and
networking equipment suppliers, service and content providers.
LIGHTCOUNTING 2
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

3. The Industry Supply Chain
Cash flow
Products and Services
LIGHTCOUNTING 3
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

4. Is this Industry Profitable?
Average Annual Net Margin = (net profit/ total revenue)
Companies 2008 2009 2010 2011
Content Providers 12% 16% 16% 14%
Service Providers 6% 10% 12% 8%
System Vendors 5% 5% 8% 6%
IC Vendors 10% 9% 22% 20%
OC and Module Vendors 2% -4% 3% -1%
Content Providers and Communication Semiconductor Suppliers (IC Vendors)
are the most profitable … on average
Optical component and module vendors are only profitable when the demand
exceeds supply
State of the Industry Report: http://www.lightcounting.com/2012_SOTIR.cfm
LIGHTCOUNTING 4
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

5. Optical Component and Modules
suppliers are mostly in the red
Annual Net Margin
OC Vendors 2008 2009 2010 2011
- Emcore sold VCSEL
Accelink 16% 13%
business to Sumitomo
Emcore –12% –23% –8% –24%
Finisar 6% 4% 10% 4% - NeoPhotonics
JDSU 6% 1% 1% 2% received investments
NeoPhotonics 2% –8%
from Rusnano
Oclaro 1% –3% –12% –21%
- Oclaro and Opnext
O-Net 28% 20%
merged
Oplink 7% 12% 12% 19%
Opnext 1% –15% –17% –16% - O-Net and Oplink have
Average 2% –4% 3% –1% the highest margins
LIGHTCOUNTING 5
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

6. Investors had very high expectations
from the optical technology you like
Would
to come to a
party with us?
LIGHTCOUNTING 6
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

7. Who is controlling the market?
• MSAs • 10G optics
• Price mark-ups • AOCs
• Vertical Integration • Low cost datacenters
• Aggressive pricing • 100G interconnects
LIGHTCOUNTING 7
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

8. What is the problem with optics?
• Is this industry too young? (90% of business in
photonics have less than 100 employees)
• Are the customers too powerful?
• Is the technology hard to scale?
• Too many competitors?
• Too many vendors offering contract
manufacturing services?
LIGHTCOUNTING 8
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

9. Strategies for success
• Scale and diversification (Finisar, Oclaro)
• Unique capabilities (very few, Infinera?)
• Intellectual property protection (Avago/Emcore,
Finisar/Source Photonics)
• Manufacturing excellence (Contract Manufacturers)
• Innovation (very long term strategy)
LIGHTCOUNTING 9
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

10. Consolidation is very slow
Market shares of optical transceiver vendors
50%
45%
40%
35%
30% Top 3
25% Top 4-6
Top 7-10
20%
Rest
15%
10%
5%
0%
2004 2005 2006 2007 2008 2009 2010 2011 2012
LIGHTCOUNTING 10
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

11. Diversification of optical transceiver
vendors
Generalists Specialists
LIGHTCOUNTING 11
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

12. Revenues of top ten Chinese vendors
$1,000
$800
Total Revenue ($M)
$600
$400
$200
$0
2006 2007 2008 2009 2010 2011
Data accounts for sales of the following vendors: Accelink, Eoptolink, Gigalight,
HG Genuine, Hi-Optel, Hi-Sense (HBMT), O-Net, Sunstar, WTD, and Wuxi-ZTE.
LIGHTCOUNTING 12
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

13. How does the future look like?
You never know
LIGHTCOUNTING 13
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

14. Datacenter Cabling in the “Marketing”
Brochures
LIGHTCOUNTING 14
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

15. The Yellow Wall
LIGHTCOUNTING 15
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

16. Ethernet transceiver market
$900
$800
$700
$600
1 GigE
Sales ($M)
$500
10 GigE
$400 40 GigE
100 GigE
$300
$200
$100
$-
2008 2009 2010 2011 2012 2013 2014 2015 2016
LIGHTCOUNTING 16
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

17. Bandwidth distribution
“To move up the value chain of profitable services,
provider must deploy ample network bandwidth, end to end”
Leping Wei, China Telecom
Network Bandwidth
10 Tbps
20 Mbps 1 Tbps
1 Mbps
Customer Premises Core
Network Network
LIGHTCOUNTING 17
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

18. Distribution of aggregated bandwidth
Major upgrades will be necessary.
Aggregated Network Bandwidth
This will be a major opportunity for suppliers
1-20 Mbps x
number of
customers
1 - 10 Tbps x
Number of fiber lines
Customer Premises Core
Network Network
LIGHTCOUNTING 18
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

19. Telecom transceiver market
SONET/SDH CWDM / DWDM FTTx Wireless Infrastructure
$1,200
$1,000
$800
Sales ($M)
$600
$400
$200
$-
2008 2009 2010 2011 2012 2013 2014 2015 2016
LIGHTCOUNTING 19
Market Research on High-Speed Interconnects 10/30/2012
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.

20. Thank you
www.lightcounting.com
LIGHTCOUNTING 10/30/2012 20
Market Research on High-Speed Interconnects
Datacom, Telecom, CATV, FTTX, Consumer markets © Copyright 2011 LightCounting LLC All material proprietary and confidential.