Dec. 13, 2017

LightCounting Releases December 2017 Quarterly Market Update

It was business as usual for the optical communications market in 3Q17. As illustrated in the figure below, which compares the industry financials for Q3 2017 with the same quarter of last year, spending of telecom service providers declined again, while leading internet companies ramped up their infrastructure investments (shown as datacom capex in the chart). These growth rates in inftrastructure spending are well correlated with sales of networking equipment and optical components in the telecom and datacom segments.

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Chinese service providers reduced their capex in 2017 as planned and China Telecom mentioned that they will continue to cut capex in 2018. Orange is the only company on our list of top 15 telecom service providers that is likely to spend a little more than planned in 2017.

The leading internet companies reported sharply higher revenues and set new records in spending in 3Q17. Alibaba, Facebook and Google increased their infrastructure investments by 142%, 62% and 39%, respectively. Facebook disclosed plans to double its capital expenditures in 2018.
Among the datacom equipment suppliers, Arista and Dell reported 50% and 25% increases in sales, respectively. Declining sales for the telecom networking equipment segment overall were directly related to lower revenues by Huawei, Nokia and ZTE.

Optical transceivers for the Cloud datacenters continue to enjoy solid demand.  Applied Optoelectronics and Innolight reported 27% and 94% higher revenues in Q3 2017, compared to the same quarter last year. Shipments of PSM4 and CWDM4 100GbE modules set new records, however demand for LR4 100GbE QSFP28 transceivers was softer than expected.

Suppliers of optical components and modules in the telecom market reported sequential increases in sales of 100G DWDM transponders and WSS modules, but these were not sufficient to compensate for declines in FTTx and wireless fronthaul markets on the sequential or year over year basis.

Suppliers of semiconductor chips, lead by Broadcom, Intel and Qualcomm reported higher revenues in Q3 2017 (not shown in the figure above). Demand for their products remains strong across a range of market segments including automotive and communications. Analog Devices, Qualcomm and Xilinx mentioned increasing levels of activity in the wireless communications segment, including 4.5G and 5G projects. Expectations remain high for initial commercial deployments of next generation wireless technologies in 2018, confirming our projections for the optical fronthaul market described in Next Generation Access Optics Report, published in November 2017.

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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