March 23, 2018

LightCounting publishes Quarterly Market Update report and spreadsheet

LightCounting’s just-published March 2018 Quarterly Market Update provides detailed public company financial results as well as proprietary vendor shipment data through the end of 2017. This allows us to finally evaluate the fourth quarter and the whole year of 2017 “with all the data in”.

It turns out that 2017 was a record year for optical components industry revenues. While this may be surprising, the numbers back it up (well, sort of).  Aggregate 2017 revenues of public optical components vendors (from the OC Vendor tab in the QMU spreadsheet) totaled $8.266 billion for 2017, 8% higher than the $7.639 billion reported for 2016. The transceiver-only figure provided by the survey data is $5.482 billion for 2017, just a half-percentage point higher than the 2016 figure of $5.451 billion.  So for transceivers alone, 2017 was a still a record, but by an insignificant amount.

The difference in this comparison is telling. The publicly-reported, total-company figures includes revenue from new and different product opportunities such as 3D-sensor arrays, which gave Lumentum an incremental $200 million in sales in the fourth quarter of 2017, and are expected to be even larger in the latter half of 2018. II-VI also reported sales growth above the group average, and has a broader product portfolio than others in the group.

Many components vendors experienced decreased demand for various products in 2017, for a variety of reasons. Spending by Chinese OEMs slowed, partly due to inventory and partly due to a pause in network upgrade projects. Some products like 40G and CFPx transceivers are near the end of their product life, and are being replaced with smaller/faster substitutes. Access products for PON and fronthaul networks are at a low point in the multi-year network upgrade cycle. 

The early 2018 market outlook provided by company CEOs in their earnings calls reflected this challenging market environment, and is summed up in this chart showing revenue guidance for Q1 2018, presented as projected revenue growth vs. Q1 2017. 

LT_032318.png

Despite this pessimistic short-term outlook, there are reasons to be optimistic about 2018 as a whole. The ICPs double-digit revenue and spending growth shows no signs of slowing down. And China is embarking on a plan to beef up its datacenters in support of strategic goals, which will just add fuel to the fire. The inventory issues at OEMs are reported to be mostly resolved or should be by the end of Q1. China Unicom has issued a tender for new network equipment and China Mobile is expected to do the same. CSP capex, which was 2% lower in 2017 than in 2016, is expected to increase slightly, returning to 2016 levels.  And although the first 5G-capable phones won’t hit the market for another year or two, CSPs are already embarking on trials, and starting to upgrade their core/metro/access networks to support the higher levels of traffic that widespread 5G will eventual bring. Meanwhile traffic growth in global networks and in datacenters continues unabated, maintaining strong demand for higher-speed Ethernet and DWDM optics.

More importantly, Lumentum’s success in 3D-sensors for smartphones provides a shining example of how rewarding it can be for optical components makers to branch out into adjacent markets, leveraging their expertise and their technology capabilities. II-VI and Finisar are already following Lumentum’s lead into the 3D-sensor market, and Finisar is investing in a new 6-inch VCSEL wafer facility in Sherman, Texas to expand capacity for these products. LIDAR and other optical sensors will play an increasingly important role in autonomous vehicles, and optical components no doubt find application in other varied facets of an ‘internet everywhere’ 5G/IoT world. 

The newly published Quarterly Market Update provides data and commentary on Q4 2017 financial results of CSPs, ICPs, hardware, and components makers, as well as actual product level shipment data for 3Q and 4Q 2017, obtained via LightCounting’s proprietary vendor shipment survey. LightCounting subscribers can access the PDF and spreadsheet at: https://www.lightcounting.com/login.cfm

In the next two months, LightCounting will publish its High-Speed Ethernet Optics report (with Ethernet transceiver forecast), the Cloud Report, and the LightCounting Market Forecast (covering all product segments). Reports on the State of the Industry and on Integrated Optics are slated for May. For more information see our 2018 LightCounting Research Roadmap.

3D Sensing for Self-Driving Cars Reaches the Peak of Inflated Expectations

LightCounting releases a new report addressing illumination in smartphones and automotive lidarIn 2019, the market for VCSEL (vertical cavity surface-emitting laser) illumination in smartphones will exceed $1.0 billion – now nearly triple the size of the market for communications VCSELs. That’s quite remarkable for a market that didn’t exist three years ago.3D sensing in smartphones felt like an overnight sensation, but the technology foundations were laid down years ago with Microsoft’s Kinect – a motion-sensing peripheral for gamers released in 2010 but discontinued in 2017 after lackluster sales. Lumentum supplied lasers to the Kinect almost a decade before the iPhone opportunity emerged; the company was ready to profit from the iPhone X opportunity when Apple decided to launch 3D sensing for facial recognition in September 2017.

Figure: 3D depth-sensing meets the Gartner Hype Cycle

3D Sensing

Source: Gartner with edits by LightCounting

If all technologies follow the Gartner Hype Cycle, shown in the Figure above, then 3D sensing in smartphones is now moving up the slope of enlightenment. Android brands raced to add 3D sensing to their flagship phones in 2018 – the Xiaomi Mi8 Explorer and Oppo Find X phones were first – although these only sold in single digit million quantities. Huawei also brought out new phones with 3D sensing, but the ongoing U.S. export ban on the Chinese company must be hurting the company’s traction outside China. Apple continues to dominate the market as all new iPhones released by Apple since 2017 have included 3D sensing on the front of the phone. Apple is expected to introduce 3D sensing for ‘world-facing’ applications in 2020, which adds another laser chip to every phone.

Last year illumination for lidars were not included in our market forecast since LightCounting considered it unlikely that lidar would penetrate the consumer market to any great extent over the forecast period. All indicators now point to a market for lidar illumination ramping up in 2022 and beyond. Optical components firms are now shipping prototypes and samples of VCSELs, edge emitters and coherent lasers to customers developing next-generation lidar systems – many of them building on their expertise in illumination for optical communications and smartphones.

As was the case with smartphones, the foundations for lidar technology were laid down much earlier – in this case with the DARPA Challenge 2007, where the winning vehicle used a 64-laser lidar system from Velodyne Acoustics (now Velodyne Lidar). Lidar is considered by the majority of the industry to be an essential part of the sensor suite required for autonomous driving, helping the vehicle to navigate through the environment and detect obstacles in its path. The first commercial deployments have begun. In Germany, lidar on the Audi A8 enables the car to drive itself for limited periods under specific conditions. In Phoenix, Arizona, you can hail a ride in a Waymo robotaxi.

Investor enthusiasm for lidar is undeniable with nearly half a billion dollars invested in lidar start-ups in 2019 according to our analysis of publicly available investment data. Notable deals include $60 million for U.S. company Ouster in March, Israel’s Innoviz Technologies Series C round of $132 million in the same month, and $100 million for U.S.-based Luminar Technologies in July. Interestingly, these examples illustrate the variety of lidar approaches: each company is building a different type of lidar based on a different wavelength: 850nm for Ouster, 905nm for Innoviz and 1550nm in the case of Luminar. There’s an open technology battle and they can’t all be winners.

The automotive lidar market seems to be close to the peak of ‘inflated expectations’. It’s easy to understand why. The automotive industry is enormous, with nearly 100 million vehicles (including trucks) produced annually. Players like Baidu, GM Cruise and Waymo are backed by deep corporate pockets, and new entrants like Aurora and Pony.ai are attracting hundreds of millions in investment. Intel’s $15.3 billion purchase of Mobileye in 2017 was also directed at autonomous driving. Sensor company AMS is in a $4.8 billion battle to acquire German semiconductor lighting firm Osram with its eye firmly on lidar.

However, signs indicate that the descent into the trough of disillusionment could have already begun. Waymo has yet to roll out its robotaxi services more widely – and this summer admitted that its vehicles needed more testing in the rain. GM Cruise has delayed launch of commercial services for self-driving cars beyond 2019 and is reluctant to commit to a new timescale, with its CEO Dan Ammann observing that safety is paramount; automotive is not an industry where you can “move fast and break things” he said. A casualty of the slow pace was optical phased array lidar developer Oryx Vision, which closed its doors in August and started to hand money back to investors.

While lidar is being deployed commercially today, prices are not conducive to mass production, and there are open questions around regulation, safety, ethics and consumer acceptance. Do local laws prohibit self-driving cars? Will they really be safer than humans? Who is responsible for a crash? LightCounting remains skeptical about the pace of adoption of autonomous vehicles, but will be watching the market closely and with optimism.

More information on the report is available at: https://www.lightcounting.com/Sensing.cfm.


Recently Published Reports: