
The report from Infonetics Research found that the sector jumped seven percent to US$3.3bn in the fourth quarter of 2006 compared with the third quarter.
Sonet/SDH equipment, which has long been "king of the hill" in the optical network hardware market, represented 64 percent of the overall market in 2006.
But with more service providers around the world pushing Wave Division Multiplexing (WDM) and Ethernet instead of Sonet/SDH in access networks, the king's days are numbered, according to Infonetics' latest Optical Network Hardware report.
The study expects that, starting in 2007, spending on Sonet/SDH equipment will slowly begin to decrease every year, while WDM spending will rise every year at least until 2010.
"Spending on Sonet/SDH equipment has long dominated in the optical network hardware market, but WDM sales have grown steadily every year since 2002," said Michael Howard, principal analyst at Infonetics.
"In fact, in the fourth quarter of 2006, WDM sales shot up 18 percent while Sonet dropped 18 percent.
"In 2002, WDM represented about 30 percent of total optical network hardware spending, and Sonet/SDH about 70 percent. Eight years later, in 2010, we expect WDM spending to surpass Sonet/SDH."
Howard added that competitive pressures, rising broadband and mobile traffic, and video and IPTV opportunities will continue to drive carriers to upgrade their networks, which will keep the optical market healthy for the next five years.
But the shift from Sonet/SDH to WDM will keep overall optical network hardware revenue flat for the next several years.
Alcatel-Lucent held first place in 2006 worldwide optical network hardware revenue market share, according to Infonetics, followed by Huawei and Nortel.
North America makes up 35 percent of the worldwide optical network hardware market, EMEA 33 percent, Asia-Pacific 27 percent and Central America/Latin America six percent.