LightTrends

 

Can the global optical transceiver market extend its 14% CAGR to 20 years?

LightCounting releases the April 2019 edition of the Optical Communications Market Forecast Report

 

The global optical transceiver market will be overdue for growth after two slower than expected years in 2017-2018 and most likely another slow year in 2019. What would it take to put this market back on track for 20 years of 14% CAGR for 2003-2024, as illustrated in Figure 1 below?


Figure 1: Global sales of optical transceivers in 2003-2024

 

It does not take much. This is the short wish list for 2019-2020:

  • China and the United States reach a trade deal in 2019.
  • Deployments of 5G will roll out as expected, lifting demand for wireless fronthaul and backhaul optics.
  • Shipments of next generation Ethernet modules, including 2x200GbE, 4x100GbE and 400GbE will reach decent volumes in 2020 and price declines in the Ethernet market return to their historical average.

The last bullet point is the most critical for the market growth in 2020-2024. Ethernet is already the largest segment of the global optical transceiver market and it is projected to account for 64% of the total in 2024, up from 45% in 2016.

Demand for 100GbE Ethernet transceivers was very strong in 2017-2018, but very steep price declines (up to 50% in 2018) limited growth in sales revenue. The left chart in Figure 2 shows normalized average prices across the whole Ethernet segment in 2016-2024, calculated in terms of $/Gbps. The right chart in this figure shows annual price declines in 2011-2024.


Figure 2: Normalized ASPs for Ethernet transceivers and annual declines in average prices

Source: LightCounting

Normalized average price of Ethernet transceivers declined from above $6/Gbps in 2016 to $3/Gbps in 2018. Despite projected moderation in price declines in 2020-2024, the normalized price will drop to just above $1/Gbps by 2024.

Annual price declines reached -37% in 2018, beating the previous record of -33% set in 2011. The normalized ASPs tend to drop more steeply as shipments of new higher speed product reach high volumes. This was the case with 10GbE in 2011, 40GbE in 2014 and 100GbE in 2017-2018. Will history repeat itself in 2020-2024?

The problem is that there are too many different next generation products on the roadmap now. Google is deploying 2x200GbE SR8 and FR8 transceivers, Amazon plans to use 4x100G DR4, and Facebook is staying with 100GbE for now and plans to use 200GbE next. Other Cloud companies have not finalized their plans yet, as far as we know. Because of this fragmentation none of the products will reach very high volumes justifying price declines that we observed in 2018. This may not be great for the customers, but it would be a well overdue break for suppliers.

Our updated forecast includes revised projections for the wireless fronthaul and backhaul market to account for changes in deployment plans at China Mobile. It also presents a new analysis suggesting that the percentage of fiber not equipped with optical transmitters (or dark fiber) increased in 2017-2018. A lot of this dark fiber will be used in the fronthaul and backhaul applications.

It also includes a more detailed forecast for WSS modules as well as high-speed modulators and coherent receivers for DWDM applications. Demand for WSS modules increased sharply in 2018 mostly due to deployments of these modules in China. Demand for pump lasers and fiber amplifiers (not included in this forecast) was also strong in 2017-2018. An increase in sales of these products is a leading indicator for higher sales of DWDM transceivers, modulators, coherent receivers and tunable lasers in the next 2-3 years. This is consistent with our forecast, but growth in sales of those products on a merchant market will be limited by internal manufacturing of these devices by the leading equipment suppliers, including Ciena and Huawei.

LightCounting’s Market Forecast Report provides a detailed market demand forecast through 2024 for optical components and modules used in Ethernet, Fibre Channel, CWDM/DWDM, wireless infrastructure, FTTx, and high-performance computing (HPC) applications.

Key inputs include an analysis of the business and infrastructure spending of the top 15 service providers and of the leading Internet companies, and sales data from 2016 to 2018 for more than 30 transceiver vendors, including more than 20 vendors that shared their confidential sales information with LightCounting. The forecast is based on LightCounting’s proprietary forecast model, which correlates transceiver sales with network traffic growth and the projected deployments of LTE and FTTx systems for broadband access.

LightCounting is also grateful to many industry experts for their critical review of the forecast projections.

More information on the report is available at: https://www.lightcounting.com/Forecast.cfm

 

About LightCounting Market Research 
LightCounting -- The name alone is what sets us apart and defines us as a company. We are a leading optical communications market research company, offering semi-annual market updates, forecasts, and state-of-the-industry reports based on analysis of primary research with dozens of leading optics component, module, and system vendors, as well as service providers and cloud companies. LightCounting is the optical communications market's source for accurate, detailed and relevant information necessary for doing business in today's highly competitive environment. Register to receive our monthly newsletter: LightCounting.com or connect with us on LinkedIn and Twitter.

Interested in meeting with LightCounting at these upcoming industry events? Email us today to schedule a meeting with our team. View our recently published reports and 2019 Research Roadmap.