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Forecasting the market at the dawn of a new cold war

LightCounting comments on the latest news and shares data on the global market for DWDM optics from Market Forecast Report published in April 2019

May 2019 will probably be recorded in history as the month when the new cold war started. The previous one ended less than 30 years ago with the fall of the Berlin wall in November, 1989. The new one will be less about the ideology and a lot more about economic dominance, however it could be just as paralyzing as the old one.

Why can we not learn from our history and the mistakes made in the past? Are politicians consciously looking for confrontations in order to have something to do while in office or to justify their grips on power? Nationalism is very powerful and a war of some kind is a proven recipe for getting presidents re-elected. Let us all hope that all our governments have enough integrity to stop well short of actual kinetic warfare.

The new wave of tariffs and sanctions against Huawei will certainly impact many global markets including the one we cover. Our forecast for sales of optical transceivers, shown in Figure 1, was built on an assumption that the trade disputes between China and the US would be resolved in 2019, which looked plausible back in April.

Figure 1: Global sales of optical transceivers (Historical data and Forecast)


A decline in global sales of transceivers in 2018 was partly caused by ZTE’s shutdown for just one quarter last year. Potential disruptions to Huawei’s business will certainly impact the market in 2019. Huawei relies heavily on US based suppliers of tunable lasers and WSS modules, but it has started developing these products internally in anticipation of potential disruptions. Huawei already makes receivers, modulators and most of their optical transceivers at their subsidiary Hisilicon. Huawei is more prepared than ZTE for the new cold war.

Ironically, demand for connectivity is at an all time high as politicians starting to erect new walls. Figure 2 illustrates growth in shipments of DWDM ports used in telecom, enterprise and DCI networks. For clarity, it combines 100G, 200G and higher speed ports into port equivalents, meaning that a 200G port is counted as 2 100G ports, etc. It clearly shows the emergence of the DCI and Enterprise segments, but telecom applications will continue to account for more than 60% of the port total even in 2024.

Please note that we use the terms DWDM ports or total DWDM ports to count all DWDM optical interfaces shipped by equipment manufacturers, including internally made modules. Volumes of transceivers sold on the merchant market are a sub-set of the total ports. For example, 100G DWDM transceivers sold on the merchant market in 2018 accounted for about 20% of the total 100G DWDM ports deployed last year. Huawei manufactures all of their DWDM ports internally and so does Ciena.



Figure 3 shows data on shipments of high-speed (100G and above) and low speed (10G and below) DWDM transponders (sold on the merchant market). Combined shipments of these products were flat in 2018, primarily due to ZTE being shut down in Q2 2018. Shipments are expected to return to growth in 2019-2020 supported by increasing volumes of CFP2 200G DCOs and the initial sales of 600G modules. 400ZR will lead the growth in 2021-2024.

 
Source: LightCounting

However, several factors will continue to limit growth in this market segment. Huawei started making pluggable 100/200G CFP DCO modules internally in 2017, limiting the business opportunity for merchant suppliers of these products. ZTE and FiberHome are likely to follow this approach. The “ZTE ban” imposed by the United States during Q2 2018 and the latest policies of the US government are adding urgency to this transition. Combined shipments of 100/200G ports by Huawei and ZTE accounted for almost 50% of the total global market in 2015-2018, attesting to the importance of these two customers.

If the merchant market for DWDM modules included all the ports, sales of 100G+ coherent modules would increase from $810 forecasted for 2020 to $3.5 billion. More information on the report is available at: http://https//www.lightcounting.com/Forecast.cfm

On a separate note, LightCounting made corrections to sales of 100GbE CWDM4 modules in 2018 and updated forecast for these products. Corrected versions of forecast database have been updated in customer accounts.  You can log in to view them here: https://www.lightcounting.com/login.cfm

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