As a consultant in the telecoms and data comms markets, I encounter all sorts of interesting little market niches. Some of these are surprisingly cosy with little or no competition and solid, if not spectacular, growth prospects. One such market segment is the provision of reference clock information to telephone operators. This is a vital piece of equipment for modern SONET/SDH network operators and for wireless operators, especially those using varieties of CDMA. Accurate time keeping at the required accuracy is a highly specialised task and it turns out that there are essentially two providers, one based in the US - Symmetricom (NASDAQ:SYMM), - and one based in Europe - Oscilloquartz. Between them they have over 90% of the market and by some measurements their combined market share could be considered to be 100%. My understanding is that Symmetricom has about two thirds of the total market, although, since Oscilloquartz is privately owned by the privately owned Swatch Group, it doesn't publish any market data to assist in this calculation.
The Synchronization Market
The Synchronization market is tied to the deploymentof new optical and wireless networks and is thus, in the long term, growing slowly but steadily. It is a market where there is limited price competition and reasonable forward visibility of sales because deployments typically occur once per carrier (plus planned expansions) and have a long sales cycle. Typically the companies have significant influence in the tender process so that by the time a tender has been published it is already clear who will win. The downside to this of course is that the sales cycle is a protracted one with considerable amounts of time and effort required to influence the tender with no guarantee of any payback. On the other hand gross margins are typically robust (Symmetricom's latest (Q1 FY05) results report gross margins of 45% or so). The market grew healthily during the 1990s with the roll out of new or upgraded networks throughout the world but had an unpleasant shock about 2002 when network spending dried up. Subsequently it seems the market has recovered - Symmetricom's latest earnings report shows that earings rose 35% YoY and gross margins improved from 35% to the aforementioned 45% - as well as a return to the black after a couple of years of losses.
New Developments
One of the more interesting developments in the Synchonization market is the deployment of 3G mobile networks. As a protocol CDMA has significantly greater requirement for clocking accuracy than GSM or TDMA and the higher bandwidth 3G varients have a correspondingly greater timing requirement. The requirement seems to vary between 3G CDMA varieties with the Chinese TDS CDMA having by far the greatest requirement for tming accuracy. This seems to be a tradeoff for spectral efficiency and it seems likely that as a result China will have a requirement for large numbers of highly accurate synchronization equipment but at a correspondingly lower price.
In the fiber network area the largest threat to the market is the deployment of packet oriented technologies. Despite the high bandwidths, in a packet network end to end synchronization is not required and thus the deployment of 10 gigabit ethernet instead of SONET OC192 and the transmission of voice as packetized VOIP dramatically reduces the need for high accuracy clocking and thus threatens the market for high-end synchronization equipment.