Optical Components For AI Clusters Remain The Only Got Area

Recently, LightCounting, a market organization in the optical communications industry, pointed out in its latest market report that in the first quarter of 2024, optical devices for artificial intelligence clusters will still be the only hot area in the market.

Telecommunications service providers reported declines in both revenue and capital expenditures, in stark contrast to most cloud computing companies. Among the 15 largest telecom operators tracked by LightCounting, revenue and capital expenditures fell by an average of 3% and 11% respectively compared with the first quarter of 2023. Financial results in local currencies were slightly more optimistic: NTT and Telefonica's revenue increased by 2%-5%. In local currency terms, China Mobile's capital expenditures are expected to have increased 6%, China Telecom to have declined 1%, and China Unicom to have declined 18%.

Current business revenue for the three major U.S. telecom operators was almost flat: AT&T and Verizon's revenue was flat from the first quarter of 2023, while Comcast's revenue increased 1%. These companies have significantly reduced spending: Compared with the first quarter of 2023, AT&T's capital spending is down 13%, Comcast is down 4%, and Verizon is down 27%.

Ericsson and Nokia reported first-quarter sales that fell 20%-30% year-on-year and quarter-on-quarter. Huawei's sales rose 37%, most of which likely came from its consumer and cloud businesses rather than network infrastructure. ZTE's sales increased by 5% compared with the first quarter of 2023, but fell by 12% sequentially.

Semiconductor integrated circuit suppliers had mixed results, with MACOM achieving growth but Microchip and Maxlinear still experiencing negative growth. The big vendors (Intel, AMD) are seeing some sequential growth but are still down year over year. Their consensus expectation is that they are nearing the bottom of the cycle and will resume growth in the second half of 2024.

Capital expenditures by Google and Microsoft hit new records, with year-on-year increases of 91% and 66% respectively. Most of the money is definitely going into AI infrastructure, including optical connectivity. Amazon's capital expenditures increased 5%, while Apple and Meta's capital expenditures decreased year-over-year in the first quarter of 2024.

The chart below shows year-over-year revenue and expense growth for the top five large data center operators that recently reported first-quarter 2024 results.

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