June 28, 2018

LightCounting releases report titled: “How Cloud Services and Cloud Computing are Changing Service Provider Networks”

This LightCounting report focuses on the changing marketplace facing the communications service providers (CSPs) and the impact of their adoption of cloud services and technologies on the industry supply chain. The report also explores regional differences in the transformation approaches being taken by the CSPs, including timelines and priorities.

The adoption of cloud technologies represents a key inflection point for the CSPs that are changing how they build and operate their networks. The move to transform networks is still in its infancy but the early-mover CSPs are committed. These CSPs have already consigned to history the traditional way of building networks using proprietary platforms and complete software stacks from individual companies. Such bleeding-edge CSPs see the embrace of cloud as defining their futures in a world experiencing unprecedented technological change and which is increasingly being led by the large-scale datacenter operators, referred to in this report as the internet content providers (ICPs).

Traditional telecom equipment and optical module makers also face dramatic changes due to the adoption of cloud technologies by CSPs. As AT&T ‘s John Donovan, now CEO of AT&T Communications, said over a year ago: “We are in a technology evolution that has seismic impacts on our vendor community.” In an extreme scenario, all specialized optical networking equipment will be replaced by commodity white boxes, forcing equipment vendors out of business. However, we believe this scenario, illustrated in the figure below, is unlikely.

Figure: How the expertise of system vendors is under assault from several directions

LT_062818.png

Source: LightCounting

Supply chain restructuring is not the main priority for the CSPs, at least none will admit it directly. But recent actions of leading CSPs such as the Open Networking Foundation’s Reference Design initiative and the keenness of the likes of AT&T to promote white boxes do raise questions. Can CSPs repeat the success of the ICPs in adopting white boxes and open source software, drastically changing the telecom industry’s supply chain?

CSPs can use all the help they can get from suppliers of networking equipment with their expertise in hardware and software design. As the priorities of the CSPs shift to SDN, NFV and software, equipment vendors are also embracing these technologies, acquiring relevant expertise and striving to become key partners for CSPs during this transition. But it is also opening the door to new players such as white box player Edgecore Networks, and Affirmed Networks which provides virtualized, cloud-native mobile products. Such players are unencumbered by traditional telecom businesses that must be protected. The new white box players are also helped by developments in the industry: they don’t need to master ASIC design and can use sophisticated merchant silicon instead, CSPs are dictating to a large degree their requirements while the open-source community and other vendors are providing the software elements needed.

There is a risk for CSPs in blindly copying the open-source software and white box strategies of the ICPs. These approaches make economic sense in situations when a single vendor monopolizes the market. For example, Linux started as an alternative to Microsoft’s monopoly of computer operating systems. OpenStack software and white box Ethernet switches were a solution to break Cisco’s monopoly in those products. However, there is no single vendor monopolizing telecom software and hardware products. It is just the opposite: there are too many suppliers competing for the CSPs’ business, innovating as fast as they can and often selling products at a loss. Guiding these suppliers in the right direction may be a more efficient way for the CSPs to get the software and hardware functionality they desire.

The traditional networking equipment vendors will be different companies in five to 10 years’ time. Their business will be centered around software and services, but specialized hardware will remain an important part of the total. White box solutions will find applications in high volume, low-end parts of the market, such as access and aggregation layers, but the most critical elements in core networks will continue to rely on high-end specialized hardware for some time yet.

Suppliers of optical modules, including ROADMs and pluggable transceivers, will have more opportunities to sell products directly to CSPs. This is already a common practice in access telecom equipment, not to mention in the enterprise and large-scale datacenter markets. However, there is more to optics than the pluggable transceivers dominating the market today. It is not a coincidence that several equipment vendors, including Ciena, Cisco Systems, Huawei and Juniper Networks made acquisitions in silicon photonics between 2012 and 2016. High-end optics remains a key competitive advantage for these companies, as they navigate in this new environment.

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