Optical Transceiver Market Review
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2022-02-08 14:42
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Traffic growth is a key growth metric for the datacom market which is primarily supported by Ethernet. Both business and consumer traffic is created in “the cloud” with consumer traffic about 2.5X larger than business traffic according to Cisco’s Global Cloud Index. It’s also growing faster. That is no surprise given the rise of video-rich social media.
According to Cisco, global IP traffic is growing at 26% CAGR, but this seems to be a low estimate. Another relevant study comes from global colocation operator Equinix. They project that installed global interconnection bandwidth capacity will grow at a 45% CAGR in 2019-2023, as shown in below Figure.
Full-year Ethernet optics sales declined in 2019 by 17%. Weaker than expected demand from several large customers and steep price declines that started in late 2018 are the main reasons for this decline. Market momentum turned positive in Q2 2019 and accelerated toward year-end, but it was too late to prevent the first decline in sales of Ethernet transceivers since 2009 and the first ever double digit decline in this market segment. Even during the telecom crash, sales of Ethernet transceivers (mostly for enterprise networks at the time) were a bright spot in the market.
Strong demand for 100GbE modules in the second half of 2019 resulted in shortages for some products, which stabilized prices. In Q4 2019, just before COVID-19 began circling the globe, demand for optical connectivity was very strong and sales of optical transceivers set a new record. When Wuhan was shut down by the virus in early Q1 2020, shortages spread to many more transceiver product categories, since so much is now manufactured in that city.
Factories in Wuhan resumed operations in Q2 2020 and the industry supply chain recovered promptly, so much so that 2020 ended up being a new record for sales of Ethernet transceivers, despite the economic impacts of the pandemic. Increased demand for Cloud services, including remote work and study, boosted internet traffic growth across global networks. This created a spike in demand for optical transceivers ranging from legacy 1GbE to the latest 400G modules.
We expect that sales of legacy products from 1GbE to 100GbE modules will decline gradually in 2021-2026, but sales of 200GbE, 2x200GbE, 400G and even 800G transceivers will sustain the market growth. Demand from the leading Cloud companies remains very strong and they will consume the majority of next generation Ethernet transceivers in 2021-2026.
According to Cisco, global IP traffic is growing at 26% CAGR, but this seems to be a low estimate. Another relevant study comes from global colocation operator Equinix. They project that installed global interconnection bandwidth capacity will grow at a 45% CAGR in 2019-2023, as shown in below Figure.
Full-year Ethernet optics sales declined in 2019 by 17%. Weaker than expected demand from several large customers and steep price declines that started in late 2018 are the main reasons for this decline. Market momentum turned positive in Q2 2019 and accelerated toward year-end, but it was too late to prevent the first decline in sales of Ethernet transceivers since 2009 and the first ever double digit decline in this market segment. Even during the telecom crash, sales of Ethernet transceivers (mostly for enterprise networks at the time) were a bright spot in the market.
Strong demand for 100GbE modules in the second half of 2019 resulted in shortages for some products, which stabilized prices. In Q4 2019, just before COVID-19 began circling the globe, demand for optical connectivity was very strong and sales of optical transceivers set a new record. When Wuhan was shut down by the virus in early Q1 2020, shortages spread to many more transceiver product categories, since so much is now manufactured in that city.
Factories in Wuhan resumed operations in Q2 2020 and the industry supply chain recovered promptly, so much so that 2020 ended up being a new record for sales of Ethernet transceivers, despite the economic impacts of the pandemic. Increased demand for Cloud services, including remote work and study, boosted internet traffic growth across global networks. This created a spike in demand for optical transceivers ranging from legacy 1GbE to the latest 400G modules.
We expect that sales of legacy products from 1GbE to 100GbE modules will decline gradually in 2021-2026, but sales of 200GbE, 2x200GbE, 400G and even 800G transceivers will sustain the market growth. Demand from the leading Cloud companies remains very strong and they will consume the majority of next generation Ethernet transceivers in 2021-2026.