Can the global optical transceiver market extend its 14% CAGR to 20 years?
LightCounting releases the April 2019 edition of the Optical Communications Market Forecast Report
The global optical transceiver market will be overdue for growth after two slower than expected years in 2017-2018 and most likely another slow year in 2019. What would it take to put this market back on track for 20 years of 14% CAGR for 2003-2024, as illustrated in Figure 1 below.
Figure 1: Global sales of optical transceivers in 2003-2024
It does not take much. This is the short wish list for 2019-2020:
- China and the United States reach a trade deal in 2019.
- Deployments of 5G will roll out as expected, lifting demand for wireless fronthaul and backhaul optics.
- Shipments of next generation Ethernet modules, including 2x200GbE, 4x100GbE and 400GbE will reach decent volumes in 2020 and price declines in the Ethernet market return to their historical average.
The last bullet point is the most critical for the market growth in 2020-2024. Ethernet is already the largest segment of the global optical transceiver market and it is projected to account for 64% of the total in 2024, up from 45% in 2016.
Demand for 100GbE Ethernet transceivers was very strong in 2017-2018, but very steep price declines (up to 50% in 2018) limited growth in sales revenue. The left chart in Figure 2 shows normalized average prices across the whole Ethernet segment in 2016-2024, calculated in terms of $/Gbps. The right chart in this figure shows annual price declines in 2011-2024.
Figure 2: Normalized ASPs for Ethernet transceivers and annual declines in average prices
Normalized average price of Ethernet transceivers declined from above $6/Gbps in 2016 to $3/Gbps in 2018. Despite projected moderation in price declines in 2020-2024, the normalized price will drop to just above $1/Gbps by 2024.
Annual price declines reached -37% in 2018, beating the previous record of -33% set in 2011. The normalized ASPs tend to drop more steeply as shipments of new higher speed product reach high volumes. This was the case with 10GbE in 2011, 40GbE in 2014 and 100GbE in 2017-2018. Will history repeat itself in 2020-2024?
The problem is that there are too many different next generation products on the roadmap now. Google is deploying 2x200GbE SR8 and FR8 transceivers, Amazon plans to use 4x100G DR4, and Facebook is staying with 100GbE for now and plans to use 200GbE next. Other Cloud companies have not finalized their plans yet, as far as we know. Because of this fragmentation none of the products will reach very high volumes justifying price declines that we observed in 2018. This may not be great for the customers, but it would be a well overdue break for suppliers.
Our updated forecast includes revised projections for the wireless fronthaul and backhaul market to account for changes in deployment plans at China Mobile. It also presents a new analysis suggesting that the percentage of fiber not equipped with optical transmitters (or dark fiber) increased in 2017-2018. A lot of this dark fiber will be used in the fronthaul and backhaul applications.
It also includes a more detailed forecast for WSS modules as well as high-speed modulators and coherent receivers for DWDM applications. Demand for WSS modules increased sharply in 2018 mostly due to deployments of these modules in China. Demand for pump lasers and fiber amplifiers (not included in this forecast) was also strong in 2017-2018. An increase in sales of these products is a leading indicator for higher sales of DWDM transceivers, modulators, coherent receivers and tunable lasers in the next 2-3 years. This is consistent with our forecast, but growth in sales of those products on a merchant market will be limited by internal manufacturing of these devices by the leading equipment suppliers, including Ciena and Huawei.
LightCounting’s Market Forecast Report provides a detailed market demand forecast through 2024 for optical components and modules used in Ethernet, Fibre Channel, CWDM/DWDM, wireless infrastructure, FTTx, and high-performance computing (HPC) applications.
Key inputs include an analysis of the business and infrastructure spending of the top 15 service providers and of the leading Internet companies, and sales data from 2016 to 2018 for more than 30 transceiver vendors, including more than 20 vendors that shared their confidential sales information with LightCounting. The forecast is based on LightCounting’s proprietary forecast model, which correlates transceiver sales with network traffic growth and the projected deployments of LTE and FTTx systems for broadband access.
LightCounting is also grateful to many industry experts for their critical review of the forecast projections.
More information on the report is available at: https://www.lightcounting.com/Forecast.cfm
About LightCounting Market Research
LightCounting -- The name alone is what sets us apart and defines us as a company. We are a leading optical communications market research company, offering semi-annual market updates, forecasts, and state-of-the-industry reports based on analysis of primary research with dozens of leading optics component, module, and system vendors, as well as service providers and cloud companies. LightCounting is the optical communications market's source for accurate, detailed and relevant information necessary for doing business in today's highly competitive environment. Register to receive our monthly newsletter: LightCounting.com or connect with us on LinkedIn and Twitter.
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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
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.