Oct. 30, 2020

LightCounting releases October 2020 Optical Communications Market Forecast Report.

TELECOM SERVICE PROVIDERS HIT A PAUSE BUTTON IN H2 2020

2020 could have been the right timing for service providers to spend more. 5G deployments are starting. The merger of Sprint and T-Mobile was finally approved and closed. COVID-19 boosted demand for network bandwidth. The only problem is that the majority of businesses and consumers do not have extra money to spend on buying more bandwidth. The outlook for service provider revenue started to deteriorate by mid 2020 and many of them prudently started to curb spending. Ciena, Cisco and more recently Intel reported a sharply lower outlook for sales to enterprise and telecom customers. Service providers continue to deploy line cards to the systems already in the field, but the number of new projects is down sharply.

It will take a solid economic recovery in early 2020 for the service providers to reverse course next year. They are usually the last ones to accelerate once an economic recovery starts. Our latest forecast assumes that service providers across the globe will resume infrastructure deployments, including adoption of new optical technologies by the end of 2021 and accelerate in 2022-2025 to catch up on the current slowdown.

The market forecast was revised down for all market segments with an exception of optical interconnects, which are mostly active optical cables (AOCs). It will become the third largest segment of the market by 2025, as illustrated in the figure below.

Figure: Changes in the market segments between 2016 and 2025

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Despite the revisions, Ethernet market segment will grow at 13% CAGR in 2020-2025. In addition to weaker demand from telecom and enterprise customers, reduced projections for sales of Ethernet optics are also related to sharper declines in product pricing. Competition among suppliers will intensify as business opportunities become limited. Leading consumers of Ethernet optics, including Alibaba, Amazon, Facebook, Google and Microsoft will be in even stronger positions to dictate terms to their suppliers.

We reduced the forecast for sales of DWDM transceivers in 2021-2022, but the longer term forecast is unchanged. Adoption of 400G and higher speed modules, including 400ZR and ZR+, will take a bit longer, but service providers will have to catch up on deployments of next generation optics to keep their networks running. The share DWDM products sold to Cloud companies will also increase by 2025. We also added 400G CFP2 DCO modules to our forecast.

Forecast for FTTx, wireless fronthaul and backhaul segments were revised down by 15-30%. Upgrades to the wireless infrastructure to support 5G deployments in Europe and the US are likely to be delayed. Low prices for wireless fronthaul optics deployed in China continue to surprise us. The latest plans of Chinese service providers for upgrades of their FTTx networks to 10G-PON are more conservative now.

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


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