Research Note

Abstract

The market for optical interface IC chipsets is reaching an inflection point now and is projected to grow at 20% CAGR in 2020-2024. Sales of coherent DSP chips used in DWDM optical interfaces and PAM4 DSPs in Ethernet transceivers will contribute most to the growth in this market, as illustrated in the Figure. This paragraph and the figure below come from LightCounting’s report “Market for PAM4 and Coherent DSP chips”published in March 2020. Updated forecast for these products will be available to clients tomorrow as LightCounting releases “October 2020 Optical Communications Market Forecast Report”. Inphi’s quarterly revenues more than doubled in Q2 2020 on a year-over-year basis. The company’s guidance for Q3 2020 was just above $180 million – a bit of a slowdown in the growth rate. Restriction on sales to Huawei and more competition from Broadcom in PAM4 DSP market are the “primary suspects” to carry the blame for it, but there may be other factors as well. Spending of service providers and enterprises on new technologies is clearly slowing down. Antitrust proceeding against Google announced last week by the US Department of Justice add more uncertainly about the future of Cloud companies. This may impact their spending on new datacenters, high speed optics, requiring either coherent or PAM4 DSPs. Nobody likes uncertainty, by the financial markets are really scared of it. Inphi’s decision to sell is a very prudent step to reward the shareholders, before the financial markets get really scared. Congratulations to Inphi’s team and shareholders. Well done! LightCounting subscribers can access the full text of this research note by logging into their online accounts.