LightCounting releases September 2021 High Speed Ethernet Optics Report
Sales of Ethernet optical transceivers set a new record in 2020, reaching $3.7 billion – up 34% from a slow 2019, when the market declined by 18%. The market is on track for a new record of $4.6 billion in 2021. This will correspond to a growth of 24% - well ahead of our forecast for 10% growth projected just 6 months ago. What is going on?
Let’s start from early 2020. Suppliers of optics recovered promptly from the disruptions caused by COVID-19 early in 2020, and the demand for all products ranging from 1GbE to 400GbE exceeded expectations for the full year. The rising tide lifted all boats: even sales of 1GbE transceivers picked up, not to mention 10G and 40G products. Demand for legacy products started to decline in the end of 2020, but it picked up again in the first half of 2021. This was not expected. Most likely, this new and probably last wave of demand for legacy products came from upgrades in enterprise and telecom networks, which were delayed due to the pandemic.
Another very positive but unexpected development is the more stable pricing. Can you believe this? We might be done with the crazy 40-50% annual price declines observed in 2018-2019. It’s about time.
The Figure clearly shows that annual price declines averaged at about 15% for 10GbE transceivers over the last decade. Price declines of 40-50% per year are justified for new products, but 100GbE was not new in 2018-2019. The demand for 100GbE was unstable, there was too much competition and new suppliers were entering the market. Are we done with this now?
Data for sales in H1 2021, collected by LightCounting, suggests that we are on track for the slowest annual price decline on record: less than 10% for 100GbE. And it is not just 100GbE, the majority of products tracked by LightCounting will see price declines of around 10% in 2021. This must be another extreme. Shortages across the supply chain and higher prices for IC chips explain this anomaly.
Our latest forecast assumes that we will return to 12-15% average price declines in 2022-2026. This is consistent with historical averages, excluding the crazy years of 2018-2019. It looks like 2014 was a bit of an anomaly as well and we may see such anomalies in the future, but these are hard to predict. Our latest forecast sticks to the historical averages, ignoring 2018-2019 and it certainly makes a difference for sales projected for the next 5 years.
Apart from more reasonable price declines, we increased the forecast for 200GbE FR4 transceivers consumed by Facebook in 2022-2023 and 200GbE SR4 modules deployed by Alibaba, Tencent and other Cloud companies in China over the next 5 years.
Several factors contributed to higher forecast for 400G transceivers. Pricing is certainly part of it, but we also increased volumes for 400G SR8 and 400G DR4 products, based on higher-than-expected sales in H1 2021. We also added a forecast for 400G SR4 transceivers, a product that was announced at CIOE 2021 by at least one leading supplier.
We added two new product categories to our forecast for 800G transceivers:
Finally, for the first time our forecast includes 1.6T pluggable optical transceivers.