Daryl Inniss was until recently an analyst covering optical components. In an invited piece, he reflects on the role of a market researcher and what he has learnt in his 15-year career.
Daryl Inniss
Rocky beginnings
I jumped ship in 2001 joining RHK, a market research firm, knowing nothing about the craft. I had been a technical manager and loved research and development, but work was 500 miles from my family and the weekly commute was gruelling.
Back then, the telecom market was crashing and I believed my job was at risk. Moving to a small market research firm could hardly be described as good planning, but it turned out to be a godsend.
I had no idea what I was getting into and my first months did not help. My mother passed away within a month of joining and I was absent for half of my first 40 days. But my boss was very supportive. Meanwhile, work consisted of unintelligible, endless conference calls. And while in this daze, September 11th occurred.
The first report - getting the job done
Completing my first market research report helped ground me in the art. I wrote about optical dispersion compensators. After interviewing many companies, I wrote a long and complicated piece, an exercise that I found difficult. I also struggled with who would read the report and what would be done with the data.
The report aimed to explain technical issues simply and included a market forecast. Completing it proved hard because there was always more information to include, a better explanation, and better forecast data to be gathered.
I felt unsatisfied but the report received kudos. Internally I was told that I was the second or third analyst to tackle that topic and the first to complete the work. And an optical company complimented me on the report. But I felt dissatisfied and wished I had done better. I wanted to understand the subject more, wished I could provide clearer, simpler explanations and also provide a better forecast.
Nonetheless, I learned the importance of completing assignments as they can go on forever.
A market researcher's role
An analyst tries to identify market opportunities and winning strategies. Looking at new products, for example, the goal is to explain what they are, why they are being introduced, who will use them, their value, and the competitive landscape. The issues must be explained to novices and experts alike. The technical novice may get a glimpse of what the technology means and how it works, while a technical expert may understand the ecosystem more deeply.
An analyst must strive to prepare simple messages that are steeped in facts. You need to have a story—say why something is happening and explain it in the context of the bigger picture.
Forecasts, market share, rankings, prices and volumes are all important. Everyone loves numbers. But the story underpinning the numbers is far more important and most people do not take the time to determine the causes behind the numbers.
Where is the industry going?
I have spent the last 15 years analysing the optical components market. Sustainable profitability is the biggest topic, and consolidation is viewed as providing the best approach. Notwithstanding the mergers and acquisitions, the market is fragmented, margins remain low, and there is still no evidence of true consolidation.
Independent of all the change, optical component suppliers post gross margins below 40 percent and most are below 30 percent while semiconductor companies are routinely above 50 percent. There is a force keeping the industry stuck at this level, in part because there is little product differentiation.
Forecasts, market share, rankings, prices and volumes are all important. Everyone loves numbers. But the story underpinning the numbers is far more important
Avago Technologies’ divestiture of its optical module business to Foxxconn Interconnect Technology Group points to one high-margin path. Discrete components—particularly lasers and modulators, and to a lesser extent photodiodes and receivers - command higher margins. Vendors can offer differentiated products at this level. Total revenues are lower so the challenge is to win enough business to fill the factory because these are fixed-cost, intensive businesses.
Subsystems offer another high-margin path, particularly for vertically-integrated companies. Here vendors are challenged with a long time-to-market, requiring a strong design team to support customer requests. Also business can be lumpy because solutions are customer-specific.
Acacia Communications' coherent 100 gigabit transponders is an example solution that has the basis to win broad-based business and high margins. The products offer a one-stop-shop solution including optics, electronics, and software. Acacia is developing silicon photonics so it controls most of the bill of materials, keeping down product cost. And its solution is differentiated in that it helps customers get their products to market while achieving a high level of performance.
Market research: even more important now
The communications industry is going through extensive change making market research more important than ever. The Web 2.0 companies are the new optical communication mindshare leaders, driving technology and business practices.
Simultaneously China is the biggest consumer of optical gear, both for long-haul and access networks. Optical component suppliers need to understand how to compete in this new environment. What are the new rules? How are they evolving? How can companies best position themselves to win more business?
Just like when I started, I ask how can a market researcher help component companies navigate this new world. No doubt, this is a challenge, but market researchers provide the collective market voice. They are the market mirror that shows the beauty spots and the warts. They are given license to say what everyone is thinking. They can raise market consciousness so participants may act fearlessly.
But market researchers need to understand the story from top to bottom—end customer to suppliers. They must communicate well which includes not only delivering the story but also being humble, admitting mistakes, keeping sources and information confidential, and taking corrective actions.
This is indeed a challenge and I feel honoured to have had the opportunity to participate. I could not have done the job without the help of wonderful people from all over the world. Their generosity, warmth, and kindness made all the difference. At bottom, it is these relationships that mattered as we tried to help each other navigate.
Biography
Dr. Daryl Inniss is Director, New Business Development at OFS Fitel, the designer, manufacturer and provider of optical fibre, fibre optic cable, connectivity, fibre-to-the-subscriber and specialty photonics products.
He was formerly Components Practice Leader at market research firm Ovum and RHK. Daryl was Technical Manager at JDSU and Lucent Technologies, Bell Laboratories, and started his career as a Member of the Technical Staff, AT&T Bell Labs.