Sept. 30, 2020

LightCounting releases the 10th edition of its High Speed Ethernet Optics Report

Forty years ago, on September 30th 1980, the original Ethernet specification was released. Since then, at least 500 million Ethernet optical transceivers have been sold. LightCounting’s database shows that 352 million of these were sold in the last ten years, generating $22.8 billion in revenue for suppliers. And it doesn’t stop there. Our latest forecast projects that another 275 million Ethernet transceivers will be sold in 2021-2025, generating an additional $24 billion in sales. If this trend continues, the industry will ship 1 billion units by 2028.

Sales of Ethernet optical transceivers set new records in both Q2 2020 and for the first six months of the year, despite the disruptions caused by COVID-19. Demand for all products - ranging from 1GbE to 400GbE - was very strong, but this is changing in the second half of 2020. Legacy products are resuming gradual declines, while 400G products are continuing to grow. A new record in quarterly sales will have to wait until 2021, but the market is on track to set a new annual record in 2020, despite the expected slower second half of the year. However, our forecast for 2025 has been revised down, from $7 billion to $6 billion in 2025 sales.

Spending by service providers and enterprises is slowing down in Europe and the United States. As COVID-19 continues to disrupt the global economy, the chances for a deeper and longer recession stretching into 2021 are increasing. Sales of Ethernet optics to the Cloud companies, which account for the bulk of this market, will sustain growth in 2021 and beyond, but the future market size will be a bit lower than expected previously (i.e. in our March 2020 report).

Brutal competition among transceiver suppliers will continue to push prices down. It has been about five years since Yuval Bachar of LinkedIn (now part of Microsoft) set a price target of $1/Gbs for 100GbE transceivers, causing an uproar among suppliers. It turns out he was right. Pricing of 100GbE SR4 dropped below $1/Gbps in 2019, and 100GbE PSM4 is reaching it this year, with DR1, FR1, and CWDM4 not far behind. $1/Gbps is now used as a benchmark for 400/800G modules, which contribute the most to market growth in 2021-2025, as shown in the figure below.

Figure: Forecast for Sales of 400G and 800G Ethernet optical transceivers

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The number of suppliers offering 400G products is growing almost faster than we can keep track of it, and some are starting to demo 800G products. Just take a look at our review of the recent CIOE exhibition.

Apart from lower prices and slowing investments in telecom and enterprise networks, the downward revision to the forecast accounts for potential delays in upgrades of Cloud datacenters in China. Using the latest technology is risky given the escalation in hostilities between the US and China, including bans on export of technologies.

More details on the report are available at: https://www.lightcounting.com/products/HSEO/


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