March 3, 2020

LightCounting updates its forecast for sales of Coherent and PAM4 DSP chipsets.

The market for optical interface IC chipsets is reaching an inflection point now and is projected to grow at 20% CAGR in 2020-2024, as illustrated in the figure below. Sales of PAM4 DSP chipsets for applications in Ethernet transceivers and AOCs will account for half of this market segment by 2024. Strong demand for coherent DSPs used in DWDM transceivers will also contribute to the growth.

Figure: Sales of IC chipsets into the global optical transceiver market.

PAM4

Source: LightCounting

The first sales of coherent DSPs increased rapidly in 2015-2016, but this growth was interrupted by excess inventory accumulated by customers in 2017 and the ZTE shutdown in 2018. Suppliers reported improving demand for coherent DSPs in late 2018 with ZTE back in business and first sales of new products for 200G CFP2-DCOs and 600G board-mounted modules. However, merchant sales of coherent DSPs were flat in 2019 because of the increased market shares of Huawei and Ciena, which manufacture coherent DSPs internally. These DSPs are excluded from our forecast for the merchant market.

The good news for the coherent DSP market is that 400ZR transceivers are sampling now. Sales of these modules will return the merchant market for coherent DSPs back to growth in 2020-2024. This market segment will remain limited because of continuing dominance by the leading suppliers of optical transport, such as Ciena, Huawei, Nokia and ZTE, which plan to manufacture DSPs and even 400ZR transceivers internally.

The bad news is that Acacia – the leading supplier of merchant DCO transceivers and coherent DSP chips is in the process of being acquired by Cisco. If this deal is approved by the Chinese government, our forecast for the merchant market will go down. Cisco plans to support all of Acacia’s customers after the acquisition is completed, but many of these vendors compete with Cisco and are likely to prioritize internally made DSPs and/or switch to other merchant vendors of these products.

The first sales of PAM4 DSPs for applications in Ethernet transceivers started in 2017-2018 and increased last year. Wider deployments of 200GbE, 2x200GbE, 400GbE and 2x400GbE Ethernet transceivers and AOCs, requiring PAM4 DSP chips, will boost sales of IC chipsets for these applications and for the total market in 2020-2024.

Increasing demand for 50G and 100G transceivers for fronthaul and backhaul applications will also contribute to demand for PAM4 DSPs. Our forecast for PAM4 DSPs and other IC chipsets, also excludes chips made internally by equipment suppliers, such as Huawei.

Average selling prices of coherent DSPs will remain 10 times higher than the average selling price of PAM4 chips, but much higher volumes of PAM4 products will make this an attractive market segment. Apart from Huawei, no other equipment supplier plans to make PAM4 DSP chips in house, at least not yet.

The report analyses the global market for IC chipsets by application, breaking the market down into CWDM/DWDM, Ethernet, Fibre Channel, FTTx, Wireless Fronthaul and AOCs/EOMs segments. It also includes a database with historical data for 2016-2019 and a 2020-2024 forecast for shipments, average selling prices and sales revenue for IC chip sets sorted by the type of transceivers or other modules where the chipsets are used. It also includes profiles of the leading suppliers of high-speed optical interface ICs and several Chinese IC companies.

The report summary and forecast database are available to LightCounting clients now, but the full report will be released in the end of next week in order to include DSP product announcements planned for the week of OFC. Please log into your account at http://lightcounting.com/auth/login


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