Sept. 18, 2018

LightCounting releases its September 2018 Quarterly Market Update Report

ZTE is one of the largest consumers of telecom optical transceivers in the world and the company’s shutdown in Q2 2018 was painful for many suppliers. However, strong sales of Ethernet optics for datacenter and enterprise applications sustained the global optical transceiver market, as illustrated in the figure below. Global demand for optics used in wireless fronthaul and FTTx also started to improve in the first half of 2018.

Figure: Global sales of optical transceivers

LT_091818.png

Sales of DWDM modules were impacted the most by the ZTE shutdown and this market segment hit a multi-year low in Q2 2018 – down by more than 20% from Q2 2017. Suppliers provided strong guidance for Q3 2018 as ZTE is back in business. For example, Acacia anticipates close to a 40% sequential increase in Q3 2018 sales with ZTE responsible for 60% of the additional revenue.

Shipments of 100GbE SR4 and CWDM4 modules in H1 2018 exceeded our expectations and demand for these products remains steady in the current quarter. Sales of all other 100GbE transceivers were slightly below our projections. Several suppliers cited excess inventory accumulated by Amazon, which is hurting the sales of 100GbE PSM4.

Demand for 10GbE transceivers was very strong in H1 2018 with unit shipments increasing by more than 20%. The majority of these modules are sold for applications in enterprise networks. Cisco reported a 42% increase in the number of 10GbE ports shipped into this market in H1 2018. Even 1GbE transceiver sales were up slightly in Q2 2018.

In terms of customers, infrastructure spending by Internet Content Providers (ICPs) in the first half of 2018 was 80% higher than in H1 2017. This benefited manufacturers of datacenter equipment such as servers and switches, whose sales were 16% higher in the first half of this year compared to the same period of 2017. Equipment sales at Cisco were up 7% and Dell – up 28%. Total revenues of Inspur (a Chinese server supplier) was up 136% compared to Q2 2017. Hopefully rumored capacity constraints at Intel will not limit server sales in H2 2018.

Communications Service Providers also grew their capex in the first half of 2018, though only by 2.6% compared to H1 2017. While commercial 5G services were launched in September 2018 by Verizon, it’s four city rollout and other operators’ equally small initial deployments are not yet of a scale to require an appreciable increase in capex. Publicly reported sales figures from telecom equipment makers were down 6% in Q2 2018 because of ZTE’s forced shutdown. Ciena and Infinera reported double digit gains. Optical business at Nokia was up 8%, but total network sales were down in Q2 2018.

The newly published Quarterly Market Update provides data and commentary on the Q2 2018 financial results of CSPs, ICPs, networking hardware, optical components, modules and semiconductor chip makers. It also includes shipment data through Q2 2018 for more than 100 optical transceiver and WSS products, obtained via LightCounting’s proprietary vendor shipment survey. LightCounting subscribers can access the report and database at: https://www.lightcounting.com/login.cfm

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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