Fiber suppliers look for light at the end of the tunnel

 

Companies that manufacture and distribute fiber and related infrastructure have been stung by sluggish demand resulting from excess inventories held by service providers, but that is starting to resolve, according to the Fiber Broadband Association and market research firm RVA LLC. Their recent research focused on Tier 3 service providers, so it only represents part of the market, but the smaller providers are expected to drive a significant portion of the demand for fiber in the coming years due to government-funded broadband builds in rural areas.

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                                                                                       Source: Fiber Broadband Association and RVA LLC.

 

The survey found field inventories down 35% from their high point earlier this year. More than half the service providers surveyed reported that their fiber optic cable inventories are now at the right levels, and two thirds said inventories of splitters, terminals and enclosures are appropriate.

 

Corning, one of the world’s largest fiber suppliers, has yet to see a pickup in fiber sales. “Currently, our shipment run rate is at least 30% below trend line,” CEO Wendell Weeks reported during the company’s third quarter earnings call on October 24. “We feel the demand drop in our fiber sales, cable sales and equipment sales,” Weeks continued. “We're confident that we will return to the long-term trend line. We believe that as customers deplete their inventories, the industry and our sales will resume growth.”

 

The rate at which service providers deplete inventories may be slowed somewhat by macroeconomic headwinds and by some pauses in build activity as providers wait to learn whether they will receive grants from the federal government’s Broadband Equity, Access and Deployment (BEAD) program.

 

Meanwhile another set of fiber customers is charging full steam ahead. The public cloud providers are ramping up their data center investments to accommodate new workloads created by applications that use artificial intelligence.

 

“AI is driving madness at a scale I have never seen,” said Josh Snowhorn, CEO of Quantum Loophole, which is in the process of building more than 40 miles of fiber to connect its 2,100-acre Maryland data center development to Northern Virginia, the nation’s largest data center market. Snowhorn said the hyperscale cloud providers are building their own fiber systems and that “is definitely pressing fiber supply chains.”

 

Fiber will supply the increased network bandwidth that data centers need for AI. Meta VP Dan Rabinonvitsj spoke at this month’s Open Compute Project Foundation Summit about how AI will impact demand for processors, memory and network bandwidth. He noted that deep learning recommendation models (DLRMs) “are really the models for our company that tie people to the content they love” and said these rely heavily on network bandwidth. Rabinovitsj said the training of large language models is also heavily dependent on network bandwidth.

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                                                           Source: Meta

Within the telecom and wireless ecosystems, companies that also do business with the public cloud providers are somewhat buffered from the weakness in demand from service providers. Corning’s Weeks described the company’s cloud business as “pretty stable” on the company’s earnings call, and said it had helped offset declines in the service provider business. He noted shifts in cloud provider capital expenditures towards large language models that rely on fiber, but he said this has not yet triggered major growth for Corning.

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This blog post also appeared in Inside Towers.