OFC 2019: Debates continue on industry profitability, the end of pluggables and integrated optics
The optical transceiver market welcomes new entrants
Suppliers of optical transceivers rarely generate profits, yet so many companies are entering this tough business. Comprised of a variety of products, the transceiver market seems to offer different value for different types of vendors:
- High-volume mature products are attractive for contract manufacturers and other vendors willing to operate on slim margins.
- High-performance new products offer an opportunity for companies with strong R&D teams and expertise in chip design and manufacturing.
- Searching for a sweet spot of high volumes and decent margins seems to be the preferred strategy for all.
CIG announced acquisition of the optical transceiver business of Oclaro from Lumentum on the first day of OFC 2019. Jabil exhibited 100G DCO and ACO modules and probably has plans to do a lot more in the future. Foxconn Interconnect Technology acquired Avago’s transceiver business a few years ago and the company is ready to reclaim its leadership in high performance Ethernet modules.
Suppliers of optical networking equipment, which can generate very high margins in the software business, plan to get their hands and feet dirty in the muddy waters of the optical transceiver market. Juniper announced 100GbE and 400GbE modules manufactured internally using the Silicon Photonics technology of Aurrion, acquired by Juniper in 2016. Ciena, Huawei and Infinera announced plans ahead of OFC to offer 400ZR modules and highlighted their growing investments into optical technologies at the show.
There’s fresh money for optics too. Source Photonics announced a $100 million equity investment as it opens a new laser fab in China and upgrades its facilities in Taiwan to meet the demand for optical transceivers for datacenter and mobile fronthaul applications. Chinese manufacturer Shanghai Hengtong Optic-Electric announced an additional $30 million investment in Rockley Photonics, a developer of silicon photonic optical engines – as the partners prepare to address the 400G DR4 market.
2x2=4, but 4x100GbE and 2x200GbE do not equal 400GbE
Live demos of 400G modules were scattered across the OFC show floor. Network equipment with 400G QSFP-DD or OSFP ports were also plentiful. More significant interoperability demonstrations were a welcome sight to affirm that PAM4 optical modules up to 100Gb/s per lambda will actually communicate. The Ethernet Alliance had a huge and complex interoperability demonstration that included a live 400GbE network spanning a half-dozen booths (part of the demo is shown in the figure below).
Figure: Ethernet Alliance Interoperability Demonstration at OFC 2019
Photo by LightCounting
All this might suggest that serious 400GbE deployment is ready to happen, but that isn't actually the case. Chris Cole of Finisar is on a mission to keep clear the distinction between 400GbE ports on switches, and optical 400GbE ports or transceivers plugged into the switches. For example: Broadcom’s Tomahawk 3 switch chip is designed to support 32 400GbE ports and it can be used with 128 100GbE, 64 200GbE, 32 2x200GbE or 32 4x100GbE optical transceivers. However, none of these are true 400GbE optical ports with a 400GbE MAC. These are really higher density 100GbE or 200GbE optical ports, co-packaged into a single module.
When Arista and Cisco show forecasts for millions of 400GbE ports in 2019-2020, optical transceiver vendors should not assume they are talking about 400GbE optics. Most 400GbE switch ports will actually be supporting 100GbE or 200GbE interfaces for some time. Google is the only customer using 2x200GbE optics now and Amazon plans to deploy 4x100GbE optics in a break-out configuration in 2019, but none of these optical connections will be carrying 400GbE traffic.
400GbE SR4.2 FR4 and LR4 optical transceivers, supporting the use of a 400GbE MAC, are shipping in very low volumes now for testing 400GbE core routers and switches. Combined shipments of these products are projected to reach 1 million units in 2022-2023 – 3 years later than the 400GbE ports on the switches. This is important for optical transceiver makers to keep in mind.
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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
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.