June 14, 2018

LightCounting reports from Ciena’s Vectors 2018 – a technology event for customers and industry analysts

Optical coherent technology is the key for Ciena today and it will remain so for the foreseeable future. However, the company is also focused on growing its services and software business in search of higher profits. These plans were discussed at Ciena’s technology event as the company’s vision for the future became more coherent.

The optical networking business is tough. Huawei and ZTE emerged as formidable competitors to western suppliers over the last 10 years, forcing them to regroup. Lucent merged with Alcatel years ago and that merged company become part of Nokia in 2015. Ciena acquired Nortel’s optical networking operations in 2010, and the company has managed to maintain solid market positions in the U.S. and Europe while developing a significant amount of business in India, Australia, Japan and South Korea.

Ciena’s leadership in innovation is essential to the company success. Ciena was early to the market with 100G, 200G and more recently 400G DWDM products and it helped the company to improve profitability in 2016-2017, as shown in the Figure below. In contrast, Infinera’s profitability plunged in the last two years, as the company was late with 200G and 400G (per wavelength) products.

Figure: Net Margin of Ciena and Infinera in 2010-2017

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Source: Financial Reports of Ciena and Infinera

Network automation is a new priority for service providers. It starts with simplifying service provisioning and network performance monitoring today, but it also holds a promise for intelligent autonomous networks in the future. Successes of artificial intelligence in beating humans in Chess and Go games illustrates the potential of this technology. However, the current state of intelligence used in networking is embryonic: it is still learning how to play Checkers, so forget Chess and Go for now.

On a more serious note, Ciena’s focus on software dates back a few years. The company acquired Cyan in 2015 and has developed Blue Planet software solutions since then. These efforts have started to make a tangible contribution to the company’s revenues in the end of 2017 and the trend continued in the first months of this year. The company plans to make formal announcements of its new Blue Planet contracts soon and they are very impressive wins.

In May 2018 Ciena acquired another software company – Packet Design -  a privately held company, employing about 100 people with expertise in Layer 3 software and network automation. This acquisition extends Ciena’s capabilities to multi-layer (1, 2 and now 3) optimization. Specific new functions recently developed include traffic explorer, performance explorer, SDN traffic engineering and path provisioning.

Ciena’s long term strategy is “to become the best in the world in automating networks”. It starts with solving real world problems for customers today, while letting the market “work through the hype” of SDN, NFV and AI. Ciena is investing into AI internally, leveraging open algorithms and teaching them new network scenarios.

The company supports open source software initiatives, such as ONAP, despite all the challenges associated with it: “There is a lot of work to be done”. Who is going to do what remains to be seen. Service providers, led by AT&T, are taking a more aggressive approach to accelerate the progress of ONAP now. This will be among the topics discussed in the upcoming LightCounting report titled “How Cloud Services and Cloud Computing are Changing Service Provider Networks”.

LightCounting subscribers can log in for a full version of the research note here: https://www.lightcounting.com/login.cfm

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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