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Notes from OFC 2012: Onset of the Terabit Age

(Download Chinese Translation)

No matter if the market is up or down, the optical industry is steadily making its way forward in preparation for the “exa-flood” of data traffic, expected in the future from new servers and tablets, ultrabooks and smartphones. The mood at this year’s event was a mix of high expectations as well as some frustration with slower than expected market growth. The high price paid by Cisco for a silicon-photonics transceiver startup two weeks prior to the show added a lot of speculation about what the impact on the transceiver business will be. Cisco is one of the largest transceiver buyers. This acquisition clearly was to secure 100 Gbps and higher technologies and to place it in Cisco’s direct control.

In 2011, the industry returned to high single-digit growth rate of sales in optical components and modules. This is very good when taking into consideration that the market had a radical reaction to the downturn in 2009 and an upward recovery spike of more than 30% in 2010. In spite of the impact of the earthquake and tsunami in Japan and the flood in Thailand during 2011, the market held steady which indicated that the growth in 2010 was driven by true demand rather than component shortages. Sales of networking equipment increased by more than 10% in 2011, suggesting that excess inventory of components (if there were any) must have been worked out. The demand for many products started to increase towards the end of 2011 and continued through early 2012. These pockets of strength might be an indication for a solid growth in the broader market for 2012 and beyond.

The $271 million splashed by Cisco for Lightwire might seem excessive to many in the industry with the exception of Lightwire management and investors. However, it is not that high in comparison to the investment made by HP for internal development of high speed optical interconnects over the last decade. The solid intellectual property portfolio of Lightwire will certainly be of high value for Cisco’s war chest for the future legal battles between competitors. Lightwire, combined with the CoreOptics acquisition, puts Cisco in direct control of their 100 Gbps datacom and telecom transceiver strategy. In 10 years from now, this deal might look like a bargain.

In telecom, “100G” was the buzz at the entire show; making previous discussions of “40G” seem ancient. The first serious discussions buzz on “Terabit” networking began. The onset of the terabit age is evident starting with interconnecting racks of servers in datacenters and extending to a single, DWDM super-channel on long-haul systems. Alcatel-Lucent and Ciena announced new 400 Gbps DWDM systems, while Ericsson had a demo of 1 Tbps transmission experiment over a single 200 GHz wide super-channel. Verizon and NEC reported a field trial, of 21.7 Tbps transmission over 1503 km, including 100G, 450G and 1T super-channels, coexisting on the same fiber.

In 2012, at the European trade show CeBIT, Intel released its next generation server microprocessor (code named Romley). Coincidentally, Apple introduced its new iPad (3) the same day. The introduction of new Apple iPad will create additional traffic demand on the client side, which will eventually hit the new servers. The new microprocessors will enable server companies to begin the selling cycle of new very powerful servers - which was delayed by almost 9 months. These servers will push traffic to the top-of-rack switches and upwards. This event will start the 40G QSFP growth cycle for switches, transceivers, active optical cables and Direct Attach copper. As server processors get more powerful, top-of-the rack switches will need 40GigE and eventually 100GigE connectivity. Demand for 10GigE optics and Direct Attach copper continues to ramp as well, partly due to delays in the introduction of lower-cost and low-power consuming 10GBASE-T with RJ-45 copper cable solutions. 10GBASE-T is still a server option card and expensive. Integrating the 10GBASE-T chips into the server motherboard is called Lan-On- Motherboard (LOM) and is key to rapid market adoption. So far, server buyers have been “Waiting for 10GBASE-T LOM”. The new 28-nm, low-power version of 10GBASE-T should be available beginning late 2013 and sales of the new servers with LOM will be very strong after this occurs.

Given the amount of data traffic in Google, Facebook and other operators of mega-datacenters, it is understandable that this group is courting the optics community for lower cost 100 GigE optical interconnects. They will be first in the demand of these products in high volume able to link rack clusters to routers at 400-600 meter reaches.

Speaking about Google and their battles with IEEE standards committee - on the show floor Google’s stand was right next to the IEEE booth. The informal design and placement of Google’s posters made it look like a site for “Occupy IEEE” protestors that camped out at the show! Having said that, there was no hostility between these two at the exhibit. In an effort to find 50 more engineers to support the installation of their first FTTH network, the staff of Google peacefully scanned the crowd and distributed toys. There were more arguments and heated discussions at the various business and marketing events of the show. It was loud and clear that there is an “Exa-flood” of data traffic coming and a need for the industry to move faster in the development of low-cost 100GbE products.

Searching for the lowest cost solution to support 100 Gbps, 2-10 km connections remains one of the most contested issues in the industry. The 4x25G approach seems to be a clear winner in the long term as it is a simpler component solution. However in the short-term, opportunity for 10x10 modules may prove to be sizable as well. Sales for both products are ramping up and in the next year or two the market will be the one to select a winner with low price being the major driver. Work on defining solutions for 100 Gbps at 40 km reach for metro links is just starting with a formal request for a proposal at the IEEE meetings. Coherent 100 Gbps transponders targeting Metro and Long Haul applications were presented at the show by several module vendors. First shipments of these products started in late 2011 and the volumes should ramp up in 2012.

For short reach interconnects, very few 25 Gbps VCSELs demonstrations were on display at the show and LightCounting saw no formal announcements with delivery dates. Oclaro introduced 20G VCSELs; Finisar showed 25G VCSELs working in their booth and drive electronics from Iptronix, GigOptics, Gennum and others are sampling. This suggests that 100 Gbps short reach (100m) connections will be another highly contested area. If past patterns are followed, the industry could expect to see 25G VCSELs in volume production perhaps at OFC in 2013. Hitachi Central Research Lab demonstrated 4X25G array of Lens-Integrated Surface Emitting DFB lasers (LISELs) as one potential alternative. LISELs can operate at 1310 nm at rates up to 40 Gbps. Longer wavelength combined with higher power of LISELs will enable extended reach applications to cover most of the datacenter connections.

In conclusion, the high cost of 100 Gbps optics renewed interest in all-optical switches, which were originally proposed in late 1990s to reduce the number of expensive O-E-O interfaces. Polatis ��� an all-optical switch company was selling low port count switches to the defense industry for years and it introduced 192x192 product for datacom and telecom applications at the show. As soon as the show opened, a team of Google engineers was at the Polatis booth and the company had a steady flow of potential customers during the event, illustrating a renewed interest for optical switching.

Many small companies that offer test and measurement products saw their business pick up in 2011. Testing of coherent transport systems and 100G line rates requires unique instrumentation for amplitude and phase measurements and smaller vendors were the first ones to offer solutions. Southern Photonics (a New Zealand based vendor) demonstrated products that enable testing of high order complex modulation format systems, such as 16QAM.

Suppliers of GPON and EPON transceivers reported strong demand for these products in early 2012. This market continued to grow after a spike of 30% in 2010 and 20% in 2011. Suppliers also reported first volume shipments of 10 Gbps PON modules. These are probably being used for connecting businesses and wireless networks rather than connecting homes. More details on shipment of optical component and modules in 2011 will be available in the sales database to be released by LightCounting along with the Market Update report (http://www.lightcounting.com/marketupdate_march2012.cfm). Solutions for next generation 40 Gbps, WDM and hybrid PON were among topics of discussion on a well-attended FTTx session of the Market Watch.

The impact of FTTx installations (that continues around the world) on the telecom networks was among the topics highlighted at the LightCounting dinner seminar and at the OFC conference. This invitation-only event attracted nearly 200 attendees that listened to LightCounting analysts and invited speakers present on market and technology trends. Presentations from this event are available to all LightCounting clients and seminar attendees. Please email Marihette Fourie for a copy. If you have any questions, please contact Marihette@LightCounting.com