Scaling the "Data Tsunami" and Market Opportunity for Optical Interconnects in Data Centers

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These are exciting times for the data center industry. The amount of data generated by businesses and consumers is growing at rates never experienced in history. Data sharing and processing requires faster networks and servers. Scaling the amplitude of this data tsunami and understanding its impact on the data centers is critical for forecasting demand for data storage and networking equipment, as well as, the potential market for data center interconnects.

It is easy to get carried away with the excitement, but it is a slippery slope for forecasting the market, planning your business or investing in this industry. Many positive developments making headlines have a downside, which is often overlooked.  For example:

  • Data generated by businesses and consumers in 2012 exceeded 2 zettabytes – up 50% compared to 2011, but this growth rate is expected to moderate in the future. Also, it is estimated that 99.5% of the data generated in 2012 was not analyzed or used and will probably never be in the future. 
  • Network traffic in data intensive science and financial networks is growing at more than 70% per year. However, the total internet traffic increased by a more modest 35% per year in 2010-2012 and this growth rate is expected to decline to 25-30% in 2013-2017.
  • The data centers built by providers of computer cloud services are huge, but these are probably replacing many small corporate data centers and improving utilization efficiency of storage and networking equipment.
  • Network traffic inside data centers increases faster than internet traffic partly due to server virtualization and software defined networking, which put more load on interconnects within the data centers. However, these changes in data center architecture also lead to more efficient utilization of equipment and interconnect bandwidth.
  • Faster PCI Express connections and multi-core processors create demand for higher data rate connections within datacenters. However, an increasing portion of interconnects will be aggregated into backplane connectivity, which is already used in Blade servers.

The impact of these and several other trends in data centers are considered in the forecast for data center optical interconnects presented in a report released by LightCounting this week:

Scaling the “data tsunami”

A report on trends in network traffic growth across many industries was published by IEEE in 2012: . One of the main findings of this report was that network traffic growth ranges from 30% in telecommunications networks to 70-90% per in scientific and financial networks. The report offers a linear extrapolation of these growth rates into the future, emphasizing an exponential growth in demand for network bandwidth. However, this is unlikely to occur, as the growth rate of network traffic tends to moderate as the networks grow and become more mature. This conclusion is confirmed by many studies on the subject and even some of the data included in the IEEE report.

A recent study scaling annual growth rate in amount of data generated by businesses and consumers ( also points out that annual growth rate is expected to slow down from 50% in 2012 to an average of 40% per year over the next eight years. Even a minor change in projections for data and internet traffic growth rates makes a huge difference to forecasting (

This analysis offers comfort that the scale of data tsunami is not a diverging function and it may eventually reach a ceiling.  The growth of most systems (such as networks, markets, or economies) slows down in terms of percentage of the total as they mature. Giant stars that eventually explode as supernovas are one of the few exceptions. Most of the data (available so far) suggest that data centers will avoid the supernova explosion.

The Open Compute Project

Large data center builders such as Google, Twitter and Facebook do not buy equipment from the traditional suppliers such as Cisco, Juniper, IBM, HP and Dell, but instead go direct to Taiwan for server motherboard and so-called white box switch manufacturers.  With an Intel or AMD processor and a reference design, the “Facebooks” can save big by avoiding markups on servers which they deploy by the thousands per day.  Their scale also allows them to buy optical modules direct from the manufacturers at the kind of prices Cisco would pay, avoiding heavy markups.

Builders of mega data centers also want to save on power, cooling and space while continuing to advance the state of the art with no-name hardware.  Facebook launched an initiative to bring the whole world to the party with the Open Compute Project.  According to Facebook, the main goal of this project is “to build one of the most efficient computing infrastructures at the lowest possible cost” (

One of the innovations proposed by the Open Compute Project is a new server architecture interconnected with very high bandwidth parallel optical links, aggregating data flows between switches and servers. This approach to connectivity reignited the debate of impact of Si-Photonics and active optical cables on the traditional optical transceiver business. There will be more announcements of integrated products next week as vendors gear up for OFC/NFOEC.  We look forward to the new developments, balancing the healthy skepticism of our previous newsletter on this topic (

Datacenter Interconnects: “Market of Transitions”

Excitement among suppliers of optical connectivity solutions for datacenters is well justified. Sales of 10 GigE SFP+ transceivers ramped very fast in 2010-2012. The first high volume shipments of 40GigE were reported by several vendors in 2012. However, it is the potential opportunity for 100GigE in datacenters that really makes many people excited.

Very few 100 GigE interfaces were actually deployed in datacenters so far. Meanwhile the number of proposed products, technologies and standards for 100GigE continues to grow. Reducing cost and power consumption of 100GigE LR4 (10km reach) transceivers is one of the challenges and reducing reach of these modules to 0.5-2km may be necessary. The industry may not reach a consensus on intermediate-reach (0.5-2 km) 100GigE in 2013, but vendors like Cisco and Huawei may go ahead with internally developed solutions, ignoring the rest of the industry (and each other).

Our market forecast model, based on correlation of internet traffic and data growth rate with a ramp in data center interconnect bandwidth, suggests that a moderate growth in deployments of 10GigE and 40GigE interconnects will be sufficient to meet increasing demand for bandwidth inside data centers in 2013-2015. Higher volume deployments of 100 GigE interconnect in data centers will start only once lower cost and power efficient 100GigE modules become available in form factors such as QSFP, but as soon as these are available, the market will be there. Our modeling suggests that the demand for 40GigE and 100GigE optical transceivers in data centers will reach 1 million units per year by 2016, but 40GigE products will dominate the market unless 100GigE solutions can scale down power consumption, size and cost.

More information on the report, including abstract, table of content and forecast database template are available at:

Reminder to our Clients: LightCounting Dinner Seminar at OFC/NFOEC 2013

The dinner and networking event will be held on Wednesday, March 20th from 5:30 pm to 8:30 pm in room 204B of Anaheim Convention Center. The event will open with a reception, followed by dinner and presentations by LightCounting's team of analysts and a keynote by Scott Kipp, Principal Technologist at Brocade Communications Systems, Inc. and President of the Ethernet Alliance.

Speakers and topics will include:
Vladimir Kozlov – CEO and Founder, LightCounting
·         State of the Telecom Industry and Market Forecast. 

Dale Murray – Principal Analyst, LightCounting
·         Market Outlook for Data Center Optical Interconnects.   
Scott Kipp – Principle Technologist at Brocade Communications Systems, Inc. and President of the Ethernet Alliance
·        Roadmaps for Data Center Links. 

Scott Schube – Senior Market Analyst, LightCounting
·        Review of OFC Show Floor Discoveries. 

This is an invitation-only event for LightCounting clients, but we do have a few seats reserved for guests. Please email by March 10th if you are interested in attending. We are planning for an enjoyable evening of industry experts, highlights and insights!

About LightCounting
LightCounting, LLC, a leading optical communications market research company, offering semiannual market update, forecast, and state of the industry reports based on analysis of publicly available information and confidential data provided by more 20 leading module and component vendors. LightCounting is the optical communications market’s source for accurate, detailed, and relevant information necessary for doing business in today’s highly competitive market environment. Privately held, LightCounting is headquartered in Eugene, Oregon. For more information, go to, or follow us on Twitter at