- Dell’Oro predicts 2025 is the year optical networking vendors will be able to put their inventory issues to rest
- Vendors view artificial intelligence (AI) as a bright spot on their road to recovery
- Nokia will likely emerge as a market leader once it closes its Infinera acquisition
We kept hearing in 2024 that the optical transport market was still in recovery mode, as customers continued to wade through excess equipment inventory. Now it seems 2025 might just be the year vendors will be able to move past the issue.
Dell’Oro Group VP Jimmy Yu told Fierce vendors have indicated order flows are increasing and that revenue in North America – where most of the excess inventory build-up occurred – is also climbing back up.
“We think excess inventory at North American service providers will be in the rear view mirror beginning in 2025,” Yu said.
Ciena, one of the top optical players in the North American market, noted in its Q4 earnings call that it’s starting to see the tide turn after two years of “very anemic spending and underinvesting.”
However, “we're not expecting it to get back the levels of spending that it was,” said Ciena CEO Gary Smith at the time.
The Fiber Broadband Association (FBA) is feeling pretty bullish about the state of the fiber equipment market. That's not surprising to hear given the U.S. fiber industry topped another deployment record in 2024.
“After 18 months of slow sales on the supply side of our membership, service provider fiber and fiber-related equipment inventories have now normalized,” said FBA President Gary Bolton in his Q4 update.
Fiber vendors await the AI coming
Hyperscaler demand for data center interconnect will show no signs of slowing down in 2025, Yu said. That, along with the ever-rising relevance of artificial intelligence (AI), is good news for optical vendors.
A big development on that front last year came from Nokia, which announced in June it will acquire Infinera for $2.3 billion. The Finnish company is also pivoting from telcos to data centers as its prime growth target.
The Nokia/Infinera deal should close in early 2025. After that, “we should see Nokia among the top three global [optical transport] vendors,” said Yu. Some of Nokia’s biggest competitors in the optical space are Ciena, Fujitsu and Cisco in the West, along with Huawei and ZTE in other parts of the world.
Nokia isn’t the only vendor looking to cash in on AI. Cisco, despite reporting a decline in networking revenue in its Q1 2025 earnings, has asserted AI is a “bright spot” as it waits for bookings to turn a profit. AI is also helping Ciena reel in new biz from service and cloud providers alike.
Managed Optical Fiber Networks (MOFN) technology, where global service providers build dedicated private optical networks for cloud providers, is gaining more traction,” Ciena's Smith said in December. Particularly in North America with Microsoft using Lumen to expand network capacity.
Historically, MOFN has always been a thing in the optical market, Yu said. But internet content providers (i.e., hyperscalers) did not typically have much say in what equipment was used in MOFNs; communications service providers made that call. “This seems to be changing,” he added.
“I think this shows the benefit of being the largest direct suppliers to cloud companies,” said Yu. “Both Ciena and Infinera have made comments that MOFN is growing as a share of their business.”
Yu also said to look out for operators continuing to transition to Internet Protocol over Dense Wavelength Division Multiplexing (IPoDWDM), a technology that uses 400G (and even 800G) coherent pluggable optics to unlock more network capacity.
And it's not just Dell'Oro predicting an optical comeback. Cignal AI has tipped the datacom optical component market to exceed $10 billion by 2025, as demand continues to grow for optics used in AI clusters.