Oct. 31, 2019

LightCounting releases October 2019 Optical Communications Market Forecast Report

The short answer is yes and our latest forecast for 2020-2024 is projecting for 15% CAGR, similar to the market growth rate recorded in 2010-2016, as illustrated in the figure.

The market is overdue for growth after three slower than expected years in 2017-2019. This forecast may look too optimistic now, but this could really happen if:

  • Deployments of 5G will roll out as expected, lifting demand for wireless fronthaul optics to a new record in 2020 and beyond.
  • Shipments of next generation Ethernet modules, including 2x200GbE, 4x100GbE and 400GbE will reach decent volumes in 2020 and price declines in the Ethernet market return to their historical average of 15-20% per year, instead of 35% in 2018. This how the suppliers lost 15% growth in revenues in 2018.

The last bullet point is the most critical for the market’s growth in 2020-2024. Ethernet is already the largest segment of the global optical transceiver market and it is projected to account close 60% of the total in 2024.

At the end of 2018, the industry was looking forward to a turnaround in 2019, despite concerns about the escalating trade war between the US and China. The good news is that the trade war’s impact was not as significant as it could have been in 2019. The ban on sales of US-made products to Huawei, imposed by the US government in May 2019, sent a shock wave across the supply chain. However, it did not take long for suppliers of optics and ICs to figure out how to continue shipping products to Huawei, since the ban proved to be not as broad as feared. Sales of WSS modules, tunable lasers, modulators and coherent receivers exceeded our expectations in 2019, partly because of excess inventory, prudently accumulated by Chinese customers, including Huawei, in anticipation of further restrictions on sales of US-made products.

The bad news of 2019 was that volume deployments of next generation Ethernet transceivers were pushed out into 2020. Facebook announced their plans of staying with 100GbE optics in March of 2019 and transition to 200GbE in 2020-2021.  Amazon started deploying 4x100GbE DR4 transceivers in the middle of 2019, but the project was pushed out into 2020 because of problems in the performance of PAM4 DSP chips. Google continued to deploy 2x200GbE optics, but the volumes remained limited. Alibaba pushed out deployments of 400GbE modules into 2021 because of a decline in their businesses’ growth rate related to a general slowdown in consumer spending in China. Demand for 400GbE optics for new core routers was also weaker than expected in 2019, as service providers are taking more time in evaluating these new products.

It is time to start catching up on all these plans.

The report provides a detailed market forecast through 2024 for optical components and modules used in Ethernet, Fibre Channel, CWDM/DWDM, wireless infrastructure, FTTx, and high-performance computing (HPC) applications.

Key inputs include an analysis of the business and infrastructure spending of the top 15 service providers and of the leading Internet companies, and sales data from 2016 to H1, 2019 from more than 30 transceiver vendors, including more than 20 vendors that shared their confidential sales information with LightCounting. The forecast is based on LightCounting’s proprietary forecast model, which correlates transceiver sales with network traffic growth and the projected deployments of LTE and FTTx systems for broadband access.

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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