Sales of 100GbE QSFP28 transceivers exceeded $250 million in Q1 2017, but weak demand for optics in China continues to puzzle suppliers
LightCounting releases Quarterly Market Update Report
Demand for 100GbE optical connectivity from operators of mega-datacenters continues to exceed supply. LightCounting estimates that sales of QSFP28 SR4, PSM4, CWDM4 and LR4 transceivers ramped by 40% in Q1 2017, to exceed $250 million. Detailed estimates for shipment volumes and pricing of these products are available in our database released along with the June 2017 Quarterly Market Update Report.
Total sales of Ethernet, SONET/SDH, CWDM/DWDM, Fibre Channel, FTTx, Wireless Fronthaul transceivers as well as Active Optical Cables (AOCs) and Embedded Optical Modules (EOMs) were down 5% in Q1 2017 sequentially, but up 15% compared to Q1 2016. Weak demand for optics in China will lead to another 3-5% decline in the global sales of these products in Q2 2016, while sales of tunable lasers, modulators and coherent receivers may decline by 20% or more.
Suppliers of optical components and modules reported a sharp drop in orders from Huawei and ZTE in March 2017, soon after ZTE reached a settlement with the US government which had been investigating ZTE for violation of export sanctions to Iran. This investigation started in early 2016 and could have curbed ZTE’s access to optics produced by US-based suppliers. It is very likely that ZTE started to accumulate excess inventory of these products as soon as this investigation started. Huawei was not formally charged with any such violations, but it may have started to build reserves of key components from US suppliers as well to avoid any potential disruptions. It is also very likely that once the settlement was reached both companies started using components from their reserves and sharply reduced their purchases of new products.
There is no direct confirmation of this analysis, but if it is correct, demand for optics in China should return to normal as soon as the excess inventory is depleted. LightCounting noticed a few signs of improving demand in June and we expect to see more of this in July and August. It is very unlikely that excess inventory will impact sales of new products for longer than six months.
Both ZTE and Huawei reported increased sales of optical networking equipment in Q1 2017 and offered strong guidance for the current quarter. Chinese service providers interviewed by LightCounting commented on their making steady investments into optical networking even as their total capex is reduced in 2017. Many new projects in China are scheduled for the second half of the year and bidding for some of these have already started; and there will be more yet to come.
Deployments of optical networking infrastructure remain strong around the world. Even projects in India have finally started after many years of delays.
Shipments of 200G DWDM ports also set a new record in Q1 2017 and there is a lot of activity on DWDM solutions enabling transmission of 400G over single wavelength. Development of 200GbE and 400GbE transceivers is also underway. Many start-up companies target this new market opportunity and continue to challenge established suppliers and technologies.
There is still a lot excitement in the market this year and there is more to come in 2018. Do not let the current weakness in demand for optics in China disrupt your longer term strategy.
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.