LightTrends Newsletter

Demand for Ethernet optics remains strong, but don’t expect 20% growth this year

September 2022

LightCounting updates forecast for High-Speed Ethernet Optics

Demand for Ethernet optical transceivers remains strong across all market segments. Yet, our latest forecast is a bit lower than the one published in March 2022. The growth rate of Ethernet transceiver sales for this year was reduced from 22% in our March 2022 forecast, to 9% now, as illustrated in the figure below. Lower than expected sales of 400G DR4 to Amazon and 2x400G modules to Google are to blame for the lower growth rate. This is just a fluctuation and both companies plan to ramp purchases of these products in 2023. Delays in deliveries of servers to Amazon are disrupting growth in demand for the optics, but this issue should be sorted out by the end of the year. Google is taking a bit longer to debug all the new equipment requiring 2x400G transceivers and this is not unusual.

The softer demand has sparked a bit more competition and accelerated price declines, which contributed to a reduced sales forecast for 2022, erasing 1% from the CAGR for 2023-2027 and lowering the market size projected for 2027 by $0.7 billion. We now expect that the growth rate will moderate to a 13% CAGR in 2022-2027 and the market will reach $9.3 billion by 2027, doubling from the record set in 2021.

The market will remain volatile, but our long-term forecast model is not designed to predict the fluctuations, but offer a reasonable 5-year target for the industry. The spike in growth rate for 2025 is due to sharply higher sales of 800G and the first deployments of 1.6T transceivers. We have seen similar spikes in the market growth rate driven by the first volume deployments of 100G in 2016, and 2x200G/400G in 2020-2021. It is possible that history will repeat itself with 800G/1.6T deployments, but the timing of the ramp can easily shift to 2024 or 2026. The latter seems more plausible, if the market growth is disrupted by an economic recession.

Fears of a recession continue to fuel speculations, but none of the transceiver suppliers, interviewed by LightCounting, are seeing any signs of weaker demand related to it, at least not yet. One of the test equipment companies is seeing weaker demand in the current quarter, which could signal delays in new project starts by the industry, but it is too early to tell with any certainty. We will know for sure if a recession is coming when it actually starts and it will take another half a year after that for the economists to formally declare it. By that time, we will be busy discussing the timing of a recovery.

Sales to Cloud companies accounted for 68% of the Ethernet transceiver market in 2021 and this is projected to increase to 82% by 2027. If these companies continue to invest in their cloud datacenter infrastructure as planned, regardless of any perceived recession, then the Ethernet transceiver market will not be impacted significantly.

High Speed Ethernet Optics report offers a comprehensive forecast for more than 50 product categories, including 1GbE, 10GbE, 25GbE, 40GbE, 50GbE, 100GbE, 200GbE, 2x200GbE, 400GbE, 800G and 1.6T transceivers, sorted by reach and form factors. It provides a summary of the technical challenges faced by high-speed transceiver suppliers, including a review of the latest products and technologies introduced by leading suppliers.

The report is based on confidential sales information and on detailed analysis of publicly available data released by leading component and equipment manufacturers along with considerable input from industry experts.

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