OFC/NFOEC 2007 was a calm if contemplative show, similar to last year’s. One industry observer even described the industry’s mood as resigned. For Lightcounting, the mood was calm but we also detected uncertainty. One reason for the doubt is the emergence of 40G and not far behind it, 100G. Players are being forced to gauge how real these markets are and when if at all they should enter. There is also uncertainty surrounding the transceiver markets where margins are wafer thin: PON and the emerging low cost SFP+. The good news at the show is the consensus surrounding video as a key market driver. Video for IP TV and on-demand services is driving traffic growth and forcing carriers to invest in their networks. But even here uncertainty reigns as to how impactful video will prove to be.

Don’t confuse growth with show focus

Lightcounting sees the optical component market being divided among the leading vendors in a gradual if definite way. These vendors continue to make tactical acquisitions to beef up their portfolios and secure their footings. The acquisitions serve two purposes: to increase growth and to better a vendor’s chance of a successful IPO.

In contrast to last year, however, there was less excitement around the steady stream of new orders, partly because new orders are becoming routine.

Few show announcements were made surrounding transceiver products sold in volume: XFP, X2, and SFP. This indicates that vendors shipping these products do not want to draw attention and thereby attract competition. Meanwhile, most of the PR was focused – even misplaced - on 40G, tunable and integrated laser modules. The 40G market is real – Comcast, Verizon and AT&T all detailed their 40G deployments at OFC. But Lightcounting questions the volumes to be expected in 2007 for 40G as well as tunable and integrated laser modules. The technologies are exciting but they remain niche markets for now.

Opportunities

One identified product offering a market opportunity is the SFP+ module, with samples becoming available from several suppliers. The SFP+ minimizes the optical transceiver functionality by moving the ICs for serial 10G links onto the line card. SFP+ is thus a low cost, low power optical interface that will support mass 10G deployment, thereby benefiting every vendor in the market. SFP+ will also shift the balance in the transceiver industry, strengthening the positions of vertically-integrated transceiver vendors and offering more market to the IC suppliers selling products directly to system vendors.

The noticeable presence of IC vendors and financial investors at this year’s OFC/NFOEC is another indicator of the industry’s return to health, even a faint reminder of the long ago boom years. Expectations are more circumspect now. No one is bluffing this time. Well, almost no one.

Lightcounting will expand its analysis of the optical transceiver industry structure in its upcoming State of the Industry Annual Report to be published in early May.