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Sales of 100GbE QSFP28 transceivers exceeded $250 million in Q1 2017, but weak demand for optics in China continues to puzzle suppliers

 

LightCounting releases Quarterly Market Update Report

 

 

Demand for 100GbE optical connectivity from operators of mega-datacenters continues to exceed supply. LightCounting estimates that sales of QSFP28 SR4, PSM4, CWDM4 and LR4 transceivers ramped by 40% in Q1 2017, to exceed $250 million. Detailed estimates for shipment volumes and pricing of these products are available in our database released along with the June 2017 Quarterly Market Update Report.

Total sales of Ethernet, SONET/SDH, CWDM/DWDM, Fibre Channel, FTTx, Wireless Fronthaul transceivers as well as Active Optical Cables (AOCs) and Embedded Optical Modules (EOMs) were down 5% in Q1 2017 sequentially, but up 15% compared to Q1 2016. Weak demand for optics in China will lead to another 3-5% decline in the global sales of these products in Q2 2016, while sales of tunable lasers, modulators and coherent receivers may decline by 20% or more.

Suppliers of optical components and modules reported a sharp drop in orders from Huawei and ZTE in March 2017, soon after ZTE reached a settlement with the US government which had been investigating ZTE for violation of export sanctions to Iran. This investigation started in early 2016 and could have curbed ZTE’s access to optics produced by US-based suppliers. It is very likely that ZTE started to accumulate excess inventory of these products as soon as this investigation started. Huawei was not formally charged with any such violations, but it may have started to build reserves of key components from US suppliers as well to avoid any potential disruptions. It is also very likely that once the settlement was reached both companies started using components from their reserves and sharply reduced their purchases of new products.

There is no direct confirmation of this analysis, but if it is correct, demand for optics in China should return to normal as soon as the excess inventory is depleted. LightCounting noticed a few signs of improving demand in June and we expect to see more of this in July and August. It is very unlikely that excess inventory will impact sales of new products for longer than six months.

Both ZTE and Huawei reported increased sales of optical networking equipment in Q1 2017 and offered strong guidance for the current quarter. Chinese service providers interviewed by LightCounting commented on their making steady investments into optical networking even as their total capex is reduced in 2017. Many new projects in China are scheduled for the second half of the year and bidding for some of these have already started; and there will be more yet to come.

Deployments of optical networking infrastructure remain strong around the world. Even projects in India have finally started after many years of delays.

Shipments of 200G DWDM ports also set a new record in Q1 2017 and there is a lot of activity on DWDM solutions enabling transmission of 400G over single wavelength. Development of 200GbE and 400GbE transceivers is also underway. Many start-up companies target this new market opportunity and continue to challenge established suppliers and technologies.

There is still a lot excitement in the market this year and there is more to come in 2018. Do not let the current weakness in demand for optics in China disrupt your longer term strategy.

Detailed information on the new report is available at: http://www.lightcounting.com/marketupdate.cfm


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LightCounting is a leading optical communications market research company, offering semiannual market updates, forecasts, and state-of-the-industry reports based on its analysis of primary research with dozens of leading module, component, and system vendors as well as service providers and other users. LightCounting is the optical communications market’s first choice source for the accurate, detailed, and relevant information necessary for doing business in today’s highly competitive environment. For more information, visit: www.LightCounting.com or follow us on Twitter at @LightCounting.