* Sector to see sequential years of double-digit growth
* Products like ROADMs, transceivers driving growth
* Internet cos Facebook, Google seen as growth driver
By Jennifer Robin Raj
BANGALORE, Oct 5 (Reuters) - Soaring demand for bandwidth and an explosion in the volume of data traffic rattling around the ether mean telecoms companies are having to spend big on high-end optic components to unclog and manage their networks.
That, in turn, spells growth for the firms making the fiber optic components, such as Finisar Corp, JDS Uniphase Corp and Oclaro Inc in a market sector that technology consultant Ovum values at around $4.7 billion.
The new product cycles are expected to lead the optics component market into years of sequential double-digit growth, said Daryl Inniss, Vice President Components at Ovum.
Companies such as Cisco Systems Inc, China's Huawei and Alcatel-Lucent use fiber optic components to build their own products. Telcos and telecom gear makers account for 70 percent of demand for optic compoments, with the rest coming from the IT sector.
The sector is even seeing demand from internet companies from Facebook to Google and eBay Inc as they buy optical gear to support their hyper data centers.
The optics components market grew 11 percent in 2007 and 2008, but fell 15 percent last year in the grip of the global downturn. It is expected to grow at close to 30 percent this year and 15-20 percent in 2011, Inniss said.
"Overall, the bandwidth in networks is growing. The number you hear from telcos is 40-50 percent year-on-year growth in traffic on their network."
"This type of growth suffocates, and means they have to put in new equipment to support this kind of traffic," said Inniss.
iSuppli analyst Lee Ratliff, who focuses on broadband access networks, said the research firm's network equipment forecast predicts a generally healthy optical components market.
"It's usually cheaper to upgrade the capacity of existing fiber with new equipment than it is to lay new fiber," he said.
"The equipment attached at each end of the fiber represents a significant bottleneck and must be upgraded periodically to continue pushing more and more bits through the pipe."
DRIVING UP THE ROADM
Finisar last month posted a strong quarterly result on robust demand for transceivers -- chips used to transmit and receive data for high-speed internet networks -- and ROADM products -- used to switch traffic between fiber optic networks.
"The ROADM cycle is what's driving all the growth in JDS' and Finisar's optical component business," said Auriga analyst Chandan Sarkar. "ROADM has been around a while, but it's really only taken off in the past two years."
"The use of ROADMs by Verizon to reduce bandwidth management costs related to their FiOS (home communications service) deployment made them realize how cost effective they are. Now Verizon is using them everywhere. A similar learning curve followed at AT&T," he said.
With successful deployment in the United States, the European market is now taking off, he said.
With products like ROADM, U.S.-based optical component makers have something of a competitive edge.
Ovum estimates the market for ROADMs, including filters and optical channel monitors, is worth close to $750 million, and is growing faster than the $2.5 billion transceivers market.
iSuppli analyst Jeremie Bouchaud, who focuses on MEMS (micro-electro-mechanical systems) devices, noted that while Chinese component manufacturers are more successful on simple parts, they are not yet making inroads into the more complex products like ROADM.
In the near-term, Chinese manufacturers are focusing more on older, mass market products like VOAs -- devices that adjust the power of the optical signal.
The Chinese are aggressive on price, and can undercut Western suppliers by 30-40 percent, Bouchaud said.
Shares of optic component makers were rattled by Cisco's warning in August of "unusual uncertainty" in the economy, and forecast revenue that missed Wall Street targets. (Reporting by Jennifer Robin Raj in Bangalore; Additional reporting by Siddharth Cavale, Editing by Ian Geoghegan)