LightTrends Newsletter

LightCounting updates Ethernet Optics report

Market volatility is not new or surprising for suppliers of Ethernet transceivers, but it is always stressful to see a market decline. The previous decline in 2019 was a result of lower spending by the Cloud companies, which now dominate demand for Ethernet transceivers. The Cloud companies reduced their spending again at the end of 2022 and the market outlook was dire in early 2023. A year later the market is red hot.

We expected sales of Ethernet optical transceivers to decline by 5-10% in 2023, but surging demand from Google and Nvidia kept the market growing, albeit at single digits. We have also sharply increased our forecast for sales of 400G/800G transceivers in the previous edition of this report and we increased it a bit more in this one. We now expect 40% growth in 2024, more than 20% in 2025, and a double-digit growth in 2026-2027, as illustrated in the figure below.

The growth will not continue indefinitely. Any slowdown in purchases of optics by Nvidia or the Cloud companies can reverse the market dynamics. Timing of such a decline is unpredictable. All we know is that it will happen at some point. Our model suggests a soft landing with single-digit growth rates in 2028-2029, but it is more likely that we will see another sharp drop followed by a recovery, conforming to the rocky history of the past 15 years.

Fears of an economic recession have subsided, but they continue to weigh on spending of telecom operators, which see no revenue growth. Yet, we will not know for sure if a recession is coming until it actually starts, and it will take another half a year after that for the economists to formally declare it. By that time, we will be busy discussing the timing of a recovery.

What remains certain is that optics is critical for data centers and for the rest of the global networking infrastructure. Recent progress in generative AI makes the future even more exciting. Keep this in mind while navigating the market volatility.

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