IC chipset sales will more than double by 2028, but Linear Drive CPO and Pluggables may limit growth of PAM4 DSPs

March 1, 2023

LightCounting today has published an update of its report on the Market for PAM4 and Coherent DSPs.

The market for IC chipsets for optical communications is forecast to grow from 2022 through 2028 at a CAGR of 18%, with total sales growing from around $2.6 billion in 2022 to almost $7 billion. Ethernet and DWDM account for the bulk of the market. Sales of DWDM chipsets were up sharply in 2022 because of the first high volume shipments of 400ZR/ZR+ transceivers. Sales of 600G and higher speed DWDM modules, including 800ZR, will grow even faster and are projected to account for more than 50% of this market segment by 2028.

As this report goes to print, Ciena, Fujitsu, Infinera and Nokia have announced new DSPs enabling 1.2 or 1.6 Tbps per wavelength coherent DWDM modules. These are summarized in the table below.

Table: Summary of Terabit Coherent DSP announcements 2021-2023

Source: Company press releases and briefings

Huawei and ZTE demonstrated similar capabilities at MWC 2023, but have not publicly shared details on the designs of DSPs and optical chips.

The first sales of PAM4 DSPs started in 2017-2018 and demand for 400G Ethernet modules by Amazon and 200GbE by Meta in 2021-2022 further boosted sales. Deployments of 800G and 1.6T Ethernet transceivers will drive growth in sales of PAM4 DSP chipsets in 2023-2028. Active Optical Cables (AOCs) and Active Electrical Cables (AECs) also require PAM4 DSPs, and demand will continue to grow over the next five years.

The adoption of DSP-free Co-Packaged Optics (CPO) engines and pluggable optics, referred to as direct drive or linear drive approaches will limit growth is sales of PAM4 DSP. Apparently, new SerDes, developed by Broadcom for CPO, are capable of driving pluggable optical transceivers without DSPs as well. While this remains to be validated, it may have a very significant impact on the market. Our forecast accounts for gradual adoption of CPO, but we have not estimated potential impact of linear drive pluggable transceivers on the DSP sales, yet.

We expect numerous announcements on linear drive pluggable optics at OFC 2023 and we will update this report soon after the conference. LightCounting will also host a webinar on linear drive technology on March 21^st. More information can be found here: https://us02web.zoom.us/webinar/register/WN_BAseVbuMSSGni1XEix7Z5A

The complete report and accompanying spreadsheet with forecast details is now available for download by LightCounting clients.