Oct. 30, 2018

LightCounting releases Optical Communications Market Forecast Report

God bless the Cloud! It pulled the optical transceiver market out of a ditch last year and it is projected to limit the optical transceiver market’s decline in 2018 to less than 3%. 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 of 200GbE, 2x200GbE and 400GbE optics will expand the Cloud market segment from $2.3 billion in 2018 to more than $6.8 billion in 2023.

We projected slightly higher sales of optics to the Cloud in 2018, but rapid price declines of 40GbE and 100GbE transceivers limited sales growth. Google started deployments of 2x200GbE optical transceivers in 2018 and their plans for next year are consistent with our forecast. Other cloud companies are exploring options of either staying with 100GbE for another 2-3 years, or of possibly using 200GbE or 400GbE in a breakout configuration to maximize switch radix.

As this report goes to print, Broadcom announced mass production of Tomahawk 3 Ethernet switches almost a year ahead of expectations. This adds an urgency for Cloud companies to finalize their strategies for using next generation optics. Our sales forecast of Ethernet optics to the Cloud reflects the most likely scenario, but there is a lot of uncertainty in the product mix for the next 5 years. However, there is very little doubt that sales growth of Ethernet transceivers to the Cloud will accelerate in 2019-2023.

The decline in sales of telecom optical components and modules in 2017-2018 was mostly due to weaker than expected sales of optics to Huawei and ZTE. Suppliers of optical components and modules first reported sharp drops in sales to these customers in March of 2017 which 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 April 2018 ban on sales of US-made products to ZTE added more confusion to the market and reduced the annual sales of optics to ZTE by 20-30%. Numerous projects were delayed in 2018, not just in China, but worldwide because of the ZTE ban and because of uncertainty related to China-US trade war.

Our current forecast for sales of optics to China in 2019-2020 assumes that there will be no further restrictions on sales of optics to Huawei and ZTE. Our long term market forecast accounts for strategies adopted by these vendors to reduce 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 with 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. Components and modules manufactured internally by Huawei, ZTE and other system vendors are not included in our market forecast. Domestic Chinese transceiver vendors will pick up most of the orders from Huawei and ZTE for lower-end (non-DWDM) optics. These are included in the forecast, which accounts for the global merchant market.

Yes, a looming trade conflict with China is not good news, but the fundamental market drivers remain in place, and the longer term outlook has not changed significantly. Growth in sales of Ethernet will remain strong in 2019-2023, as shown in the figure below. Access optics for FTTx and wireless, along with optical interconnects will also grow over the forecast period. Deployments of 5G are starting and sales of 25G “grey” and WDM fronthaul optics are picking up in 2018.

We increased our projections for sales of CWDM and DWDM modules in 2019-2023. Shipment volumes of 10G CWDM transceivers are exceeding our expectations in 2018 and we revised the 2019-2023 forecast accordingly. Volume shipments of 600G DWDM modules are planned for early 2019 and we included these products in the “400G and beyond” category of our forecast.

The DWDM module market has room to grow. We expect that 130,000 of coherent modules will be shipped in 2019, but the total number of coherent 100/200/400G ports will reach 710,000. This means that 82% of the ports will be built by system vendors (like Ciena or Huawei) and only 18% of the ports will use transponder modules made by companies like Acacia or Oclaro. Converting this to sales opportunity, the market for coherent modules is projected to reach $680 million in 2019, but it would have reached $3,750 million is all coherent port used transponder modules. We project that market share of coherent transponders will increase from 18% in 2019 to about 35% in 2023.

There are also signs that a new cycle of DWDM system upgrades is starting now. Suppliers are reporting strong sales of pump lasers for applications in fiber amplifiers since the second half of 2017. Sales of WSS modules used in ROADMs are up sharply in 2018. All these products are usually deployed in the early stages of upgrade cycles and these should be followed by a pick-up in sales of DWDM transponders and line cards. This is very likely to happen in 2019.

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Figure: Optical transceiver forecast 2019-2023
The Optical Communications Market Forecast 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 of the leading Internet companies, and sales data from 2010 to 2018 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.

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LightCounting is a leading optical communications market research company, offering semiannual market updates, forecasts, and state-of-the-industry reports based on its analysis of primary research with dozens of leading module, component, and system vendors as well as service providers and other users. LightCounting is the optical communications market’s first choice source for the accurate, detailed, and relevant information necessary for doing business in today’s highly competitive environment. For more information, visit: www.LightCounting.com or follow us on Twitter at @LightCounting.

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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