May 16, 2019

Forecasting the market at the dawn of a new cold war

LightCounting comments on the latest news and shares data on the global market for DWDM optics from Market Forecast Report published in April 2019

May 2019 will probably be recorded in history as the month when the new cold war started. The previous one ended less than 30 years ago with the fall of the Berlin wall in November, 1989. The new one will be less about the ideology and a lot more about economic dominance, however it could be just as paralyzing as the old one.

Why can we not learn from our history and the mistakes made in the past? Are politicians consciously looking for confrontations in order to have something to do while in office or to justify their grips on power? Nationalism is very powerful and a war of some kind is a proven recipe for getting presidents re-elected. Let us all hope that all our governments have enough integrity to stop well short of actual kinetic warfare.

The new wave of tariffs and sanctions against Huawei will certainly impact many global markets including the one we cover. Our forecast for sales of optical transceivers, shown in Figure 1, was built on an assumption that the trade disputes between China and the US would be resolved in 2019, which looked plausible back in April.

Figure 1: Global sales of optical transceivers (Historical data and Forecast)

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A decline in global sales of transceivers in 2018 was partly caused by ZTE’s shut down for just one-quarter last year. Potential disruptions to Huawei’s business will certainly impact the market in 2019. Huawei relies heavily on US-based suppliers of tunable lasers and WSS modules, but it has started developing these products internally in anticipation of potential disruptions. Huawei already makes receivers, modulators and most of their optical transceivers at their subsidiary Hisilicon. Huawei is more prepared than ZTE for the new cold war.

Ironically, demand for connectivity is at an all-time high as politicians starting to erect new walls. Figure 2 illustrates the growth in shipments of DWDM ports used in telecom, enterprise and DCI networks. For clarity, it combines 100G, 200G and higher-speed ports into port equivalents, meaning that a 200G port is counted as 2 100G ports, etc. It clearly shows the emergence of the DCI and Enterprise segments, but telecom applications will continue to account for more than 60% of the port total even in 2024.

Please note that we use the terms DWDM ports or total DWDM ports to count all DWDM optical interfaces shipped by equipment manufacturers, including internally made modules. Volumes of transceivers sold on the merchant market are a sub-set of the total ports. For example, 100G DWDM transceivers sold on the merchant market in 2018 accounted for about 20% of the total 100G DWDM ports deployed last year. Huawei manufactures all of their DWDM ports internally and so does Ciena.

Figure 2: Shipments of 100G port equivalents by application (Historical Data and Forecast)

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Figure 3 shows data on shipments of high-speed (100G and above) and low speed (10G and below) DWDM transponders (sold on the merchant market). Combined shipments of these products were flat in 2018, primarily due to ZTE being shut down in Q2 2018. Shipments are expected to return to growth in 2019-2020 supported by increasing volumes of CFP2 200G DCOs and the initial sales of 600G modules. 400ZR will lead the growth in 2021-2024.

Figure 3: Sales of high speed and low speed DWDM transponders (Historical Data and Forecast)

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Source: LightCounting

However, several factors will continue to limit growth in this market segment. Huawei started making pluggable 100/200G CFP DCO modules internally in 2017, limiting the business opportunity for merchant suppliers of these products. ZTE and FiberHome are likely to follow this approach. The “ZTE ban” imposed by the United States during Q2 2018 and the latest policies of the US government are adding urgency to this transition. Combined shipments of 100/200G ports by Huawei and ZTE accounted for almost 50% of the total global market in 2015-2018, attesting to the importance of these two customers.

If the merchant market for DWDM modules included all the ports, sales of 100G+ coherent modules would increase from $810 forecasted for 2020 to $3.5 billion. More information on the report is available at: http://https//www.lightcounting.com/Forecast.cfm

On a separate note, LightCounting made corrections to sales of 100GbE CWDM4 modules in 2018 and updated forecast for these products. Corrected versions of forecast database have been updated in customer accounts.  You can log in to view them here: https://www.lightcounting.com/login.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

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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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