6/20/2005 -- Just when it seemed there was only upside to the red hot networking sector, the optical networking market plummeted in the first quarter of 2005.

Of course, this wasn’t exactly a surprise. According to market watcher Infonetics Research, the optical networking space surged by 21 percent from Q3 to Q4 of 2004, so there was pretty much no where to go but down. In this context, then, a Q1 drop of 10 percent is at least understandable.

For the record, Infonetics stresses, many manufacturers post less-than-spectacular first quarters after having big Q4 gains.

This was the case with optical market leader Alcatel, for example, which posted huge gains in the fourth quarter of 2004, only to experience huge losses (on the order of 46 percent) in Q1 of 2005. This alone had a depressing effect on the overall optical market, Infonetics says. Also down were Nortel Networks, the number two vendor in the optical networking segment, and Huawei, which was knocked out of third place by Fujitsu.

That’s why Cisco Systems Inc., Adva, Ciena, ECI, Fujitsu, NEC and Siemens were all able to post positive growth in Q1.

For the year, Infonetics predicts overall optical networking revenue to increase by 4 percent. Things will get much better beyond 2005, however: According to Infonetics, annual optical network hardware revenue will increase by 16 percent between 2005 and 2008. The strongest growth will come from metro WDM optical equipment, which is expected to increase by 60 percent between 2005 and 2008. That’s impressive enough performance, to be sure, but the metro WDM switch segment is projected to perform even better, increasing 247 percent by 2008.

“We expect worldwide optical revenue to hit the $10 billion range by 2008, a five-year compound annual growth rate in the mid-single digits, as we see a steady healthy optical market driven by the undeniable onward push of bandwidth use by consumers and businesses,” said Michael Howard, principal analyst of Infonetics Research, in a statement.

Currently, metro makes up 74 percent of all optical network hardware revenue; long haul comprises 26 percent. -Stephen Swoyer