Jan. 30, 2018

LightCounting Releases a New Report titled “Market for Optics in China”

Over the last decade, China had a greater impact on the global optical communications industry than any other country and in some cases more than all other countries combined. People in China are proud of their achievements and the Chinese government plans to continue surpassing the rest of the world with the fast pace and huge scale of its infrastructure projects.

Programs of the Chinese government have to be taken seriously as they usually get fully implemented. If they decide to build a wall along the country’s border, they do it. The Great Wall was even equipped with a simple optical communication network comprised of fires set up on towers to transmit alerts along the wall. If they plan to have an optical fiber to every apartment in the country, this gets done as well. All while the world is watching in amazement and market forecasters revise their projections every 6 months.
Despite having spent considerable resources building a national broadband network, Chinese infrastructure investment is continuing, but the direction of these projects is shifting.

The bulk of Fiber to the Home (FTTH) projects in China have been completed. The FTTH program is moving from initial large scale deployments to steady, but slow upgrades. 5G wireless systems are just around the corner and 1 billion 4G subscribers in China are anxiously waiting. Demand for optics required by these projects is starting to pick up now and it will be red hot by 2020. Huawei will continue to lead in deployments of DWDM systems, but most of the optics for these systems will be made internally, including pluggable transponders.

Upgrades of Cloud datacenters in China to 100GbE connectivity are just starting. These projects will have the most impact on sales of networking equipment, optical components and modules deployed in China over the next 5 years.

Consumption of Ethernet optics in China is projected to grow rapidly in 2018-2023. It will account for the largest share of the total sales of optics to China by 2023, as shown in the Figure below. Demand for optical interconnects, such as Active Optical Cable (AOCs), is expected to remain very strong as well.

Figure: Optical transceivers deployed in China by market segment.

LT_012918.png

Source: LightCounting

Chinese consumers are embracing on-line commerce in a big way. Most financial transactions in China are “made in the Cloud”, using smart phone-based mobile payment services such as Alipay and WeChat Pay. The Wall Street Journal reported that mobile payments in China quadrupled from 2015 to 2016, while increasing just 40% over the same period in the United States. Market researchers estimated the total value of mobile transactions in the United States at $112 billion in 2016, compared to $9 trillion in China. (Yes, it is trillion.)

Infrastructure investments by Alibaba, Baidu and Tencent – the top 3 Chinese ICPs – are 5 times smaller in dollars compared to the spending of Amazon, Google and Facebook, but the Chinese investments are growing faster.

There are a lot of barriers for foreign companies to operate in China’s cyberspace. However, IBM partnered with 21Vianet and Dailian Wanda to build cloud datacenters in China. Amazon Web Services are now offered by Sinnet Technology and Ningxia Western Cloud Data Technology Co. Ltd in China. Apple is also working with a local partner, supporting its cloud services.

The presence of Western competitors is igniting competition in datacenter technology. Chinese ICPs are starting to upgrade their servers, switches and the connections between them to the latest 100GbE technology. If one ICP upgrades, all the others follow. Nobody wants to see their cloud applications running slower than the competition.

LightCounting’s new report discusses current and future infrastructure projects of Communication Service Providers (CSPs) and Internet Content Providers (ICPs) in China. It analyses the impact of these projects on the demand for optical networking equipment, optical modules and components. It includes profiles of the leading Chinese CSPs, ICPs, equipment manufacturers and suppliers of optical component and modules. The report includes a companion spreadsheet containing a detailed 5-year shipment and revenue forecast of optical component demand in China.

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.


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