SAN DIEGO--At the OFC NFOEC show, familiar lamentations of an overcrowded and unprofitable components and modules sector dampened the mood among attendees. Calls for consolidation only echoed those made at last year’s show. And the year before that. And at a forum held Monday, CEOs in the space generally said they didn’t expect that much-needed consolidation to occur in the next two years.

But to at least one Wall Street analyst, this dour sector suddenly seems ripe for investment.

“For the first time in seven or eight years, we just started to turn broadly much more positive on this industry,” said Todd Koffman, an analyst with Raymond James.

Koffman didn’t mince words about the problems plaguing the components business for the last half decade or so. “It’s been a terrible place for investors,” he said, filled with “terribly mismanaged companies doing stupid things over and over and over again. Basically everybody loses money.”

Excessive fragmentation is just one problem; the top 65% of the market is divided among 11 vendors, and JDSU, the leader, holds just 12%. Gross margins are just a fraction of those enjoyed by the sector’s equipment vendor customers. And there is little capital to invest in innovation. But overall, Koffman summarized the sector’s woes in a single word: Ego. Corporate managers refuse to accept reality. And therein lies the opportunity, he said.

“There is an opportunity for well-managed, fast companies that are shareholder-friendly to emerge,” Koffman said. “It hasn’t been seen yet, but there is an opportunity, and that’s why we have turned positive.”

Though meaningful consolidation has yet to occur, it hasn’t yet in part because vendors have been able to return to the investment well repeatedly in recent years. For institutional investors, their holdings in the component space are comparatively small investments in their portfolios, and the high risk motivates them to occasionally pour in a little more money, on the off chance that it eventually pays off.

“We need to see big-on-big M&A,” said Andrew Schmidt, an analyst with Nyquist Capital. One big merger, if it occurred, could set off a wave of rapid consolidation in the space, quickly resolving fragmentation problems, Schmidt said.

But although major vendors haven’t yet seen fit to combine, developing financial trends in the space could force hostile takeovers, and that prospect is another reason Koffman is optimistic.

“I’d say to those companies, ‘Watch out,’” Koffman said, “Their time is running out.”

Several players in the space have achieved enterprise values between $100 million and $200 million. The combination of cash and enterprise value among those firms “makes attractive opportunities for people to take over your company whether you like it or not. Outsiders are going to come in. Egos are going to get set aside.”

“A potentially unpleasant and turbulent time” lies ahead, Koffman said, but the expectation of rationalization following all that turbulence is part of the reason he has warmed to the sector lately.