May 2, 2018

LightCounting releases Optical Communications Market Forecast Report

God bless the Cloud! It pulled the optical components market from a ditch last year and it is likely to do it again in 2018. Demand for 100GbE transceivers from operators of mega datacenters in the United States remains strong and cloud companies in China are starting to deploy this technology as well. We expect that sales for 400GbE optics will expand the Cloud market segment (including Cloud in China) from about $2 billion in 2017 to more than $6 billion in 2023, as illustrated in the figure below.

Global sales of optical transceivers by application

LT_050118.png

Source: LightCounting

Decline in the rest of the market in 2017 was mainly due to weaker than expected sales of optics to Huawei and ZTE, including optics sold for deployments in China (also shown in the figure as China- Telecom only). Suppliers of optical components and modules first reported sharp drops in sales to these customers in March of 2017 and this was related to excess inventory accumulated by Huawei and ZTE in 2016. Most of the excess inventory was depleted by the end of 2017, but suppliers continue to report slower than expected business with these Chinese customers. The latest ban on sales of US-made products to ZTE creates even more confusion in the market.

As this report goes to print, new information emerges on a criminal investigation of Huawei launched by the US Justice Department, related to a possible violation of export sanctions against Iran. The same crime that ZTE was convinced of. On a far more positive note, top-ranking US government officials are heading to Beijing to attempt to resolve the trade disputes. It is certain that ZTE’s and Huawei’s situation will be among the bargaining chips on the table, along with Qualcomm’s acquisition of NXP, which needs to be approved by China.

In the best case scenario, the ZTE ban will be lifted in a matter of weeks and the markets will go back to normal. In case of a prolonged trade war, sales of optics by US-based companies to ZTE and potentially Huawei will drop sharply in 2018. This will do more damage to the business of the US-based suppliers than to Huawei and ZTE. The Chinese government will certainly help Huawei and ZTE to stay in business while dealing with disruptions in their supply chains, but none of the US-based optics suppliers are “too big to fail”.

Our current forecast for sales of optics to China in 2018 assumes the best case scenario for resolving the situation with Huawei and ZTE, which account for about 50% of the global sales of telecom optical networking equipment. Needless to say, sales of optics used in telecom equipment will drop sharply in 2018 in case of a prolonged trade war, as many projects will be delayed.

However, our long term market forecast is unlikely to change. Both Huawei and ZTE embarked on a long-term strategy for reducing their dependence on Western optics suppliers several years ago. This strategy was elevated to the governmental level in 2017 and early 2018, the latest escalation of trade disputes by the US government only adds further urgency to this transition.

Huawei is already making a lot of optics internally and ZTE is starting to catch up. Our forecast for 2019-2023 assumes that these companies will make most of their high-end optics, including DWDM components and modules, in house. However, there will be opportunities for suppliers of DWDM modules to do business with Huawei and ZTE. For example, future products like 400ZR. LightCounting projects that shipments of 400ZR will exceed 100,000 units by 2022 – much higher than any other coherent DWDM product on the market today. Merchant suppliers of modules shipped in such volumes should be able reach higher scale and lower cost, compared to internally made products even within large companies such as Huawei.

This report provides a detailed market demand forecast through 2023 for optical components and modules used in Ethernet, Fibre Channel, SONET/SDH, 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 leading Internet companies, and sales data from 2010 to 2017 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

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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