optical components market - ecoc exhibition focus 2017... · optical components market ecoc market...

Optical Components MarketECOC Market Focus 2017

Kevin R. Lefebvre, Ph.D.

Principal Analyst

Ovum

[email protected]

Ovum | TMT intelligence | informa2 Copyright © Informa PLC

State of the Nation

Increase in Data Centers Increase in Mobile


Optical network drivers continue to catalyze performance and scale

Optical Network Growth

Cloud services

CRAN to 5G

IoTWeb-scale Ecosystems

4K Video

Strong growth for cloud SPs

Web-scale networks

On a rolling 4Q basis, both Optical networks & components are an uptick

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4K UHD GrowthTV Sets 4K UHD TV 4K of Total Sets

Source: Nokia

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AWS

MCC

Annualized revenue run rate ($bn)


Leading CSP & ICP Revenue Growth

• Leading group of CSPs has grown at a 4% CAGR since 2009

Represents a shift in the monetary power within the industry

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Leading ICP Revenue Growth

Baidu

Alibaba

Tencent

Facebook

Microsoft

Google

Amazon

Apple

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Leading CSP Revenue Growth

KDDI

China Unicom

SoftBank

Comcast

China Telecom

NTT Group

China Mobile

Verizon

AT&T

• Leading group of ICPs has achieved a 4X revenue growth since 2009

Source: OvumSource: Ovum


Current build drivers continue momentum

More ICP ocean crossing builds

New latency optimized routes led by ICP consortium for data center interconnect

To Asia and intra Asia connectivity continues to grow

Asia Pacific due to geography of islands and peninsulas and due to limited international terrestrial connectivity options

More diverse path routes

Cable replacement

Upgrade business continues steady on existing cables

Coherent technology enables more bandwidth for older cables

Submarine optoelectronics market forecast

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2014 2015 2016 2017 2018 2019 2020 2021 2022

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Subsea Optoelectronics Forecast by region

North America EMEA Asia Pacific SCA

Subsea growth prospects strong based on additional cables and capacity fill on all existing cables


The OC market has taken a step back.

China builds in mobile, access, and core networks has slowed in there development

Expectations is that China builds will pick up next year

In 1Q17, the market reduced by -4.8% sequentially but a 10% increase compared to the year-ago 1Q16.

The telecom datacom and access declined by 6% 4% and 3% respectively from 4Q16

Margins are still high but declining Gross margins declined to 30% from a peak of 32% in

3Q16 and 4Q16.

Operating margins declined to 12% from their high of 13% in 4Q15.

OC market takes a temporary slide

The global OC market is still going strong and after this temporary slump, Telecom, Access and Datacom will pick up and move forward.

Source: Ovum


Themes

Capacity constraints and expansions are ongoing

Finisar, Lumentum, Applied Optoelectronics, Neophotonics, Oclaro, etc

Demand for Datacom transceivers outweighs supply

ROADMs/Metro/Provincial Expansion/China

Encouraged by the interest in ROADMs in China but slow to start

Verizon is moving ahead with metro expansion

Expect CFP2-ACO to pick in China and transition to QSFP

Cloud and content providers announces new builds and 100G

Microsoft’s $680m facility in West Des Moines, Iowa is set to be completed by May 2018

Apple will spend $1 billion to double the size of its data center east of Reno, NV– May 2017

Equinix announced the acquisition of 29 Verizon data center colocation facilities –April 2017

Quarterly market share: competition is great

China, North America, data center, 100G, 200G, flexgrid are still all market drivers Market is divided amongst several players

Finisar 15%

Lumentum8%

Sumitomo6%

Oclaro6%

Accelink6%

Acacia5%

II-VI4%

NeoPhotonics4%

Fujitsu Optical Components

4%

Applied Optoelectronics

4%

Other38%

3Q16-2Q17: $9.8bn market

Source: Ovum


Decrease in PON revenue but Major upswing in optical component (OC) FTTx PON

revenues due to next-gen PON deployments and plans.

The PON OC market is forecast to exceed $2.3bn in 2021 when next-gen PON OC revenues will represent more than 90% of total revenues

Datacom 100G is here, now and growing rapidly

Driven by 100G client side transceivers

MACOM has enabled 1.6 million 100G transceivers in 1H17 – higher than expected

Telecom: CFP2 ACO/DCO

Finisar, Neophotonics, Acacia, Fujitsu, Lumentum, Oclaro

Mix of 60/40 of DCO/ACO with ACO having limited life span due to the complexity of integration with increasing baud rates

Telecom losses share to datacom, access steady

Source: Ovum


China provincial deployment has slowed

CFP2-ACO will pick up and eventually give way to QSFP

Finisar

Reduction of revenue from Chinese customers by 18%

Expects to sell hundreds if not thousand WSS into each China Provincial

Oclaro

Expect coherent to grow

400G line Side is growing

Lumentum

Expect revenue to soften as Chinese customers continue to burn off inventory until first quarter of fiscal 2018

Shipped first of several new advanced ROADMs specifically designed for China

Telecom: sharp decline but future is bright

Source: Ovum


MACOM

Data Center was up 29.7% this quarter and 300% year over year

Enabled 1.6 million transceivers in 1H17

Finisar

10OG QSFP-28 Transceivers revenue increased 30% over the prior quarter

Oclaro

QSFP28 sales doubled in Q4

Lumentum

Revenue from 100G QSFP28 transceivers nearly doubled sequentially in the fourth quarter.

Applied Optoelectronics

Data center revenue in the second quarter grew 141%

Datacom: 100G is flying off the shelf

Source: Ovum


Large 10G PON network upgrades are underway this year with additional upgrades planned through 2022.

OC PON revenues are forecast to exceed $2.3bn in 2021 up from $1.2bn in 2016.

Access: Set for growth

Source: Ovum


Margins are still high but turned downward

High margins due to

New products yielding higher margin

Shortage of supply

Larger volumes

Photonics Integration

High margins allow for

Product innovations

Re-engineering

Margins are starting to slid downward

Risk that margins will continue to decrease

Source: Ovum


Component supplier’s everyday challenges

Internet Content Providers

Optical Network VendorsCarriersPublic

A lot of component suppliers and more

coming

Large raw material suppliers but optical component suppliers

have low volumes

Photonics IntegrationNew Materials:

e.g.Metamaterial


Wheel of Client Module Fortune:


Datacom


Transceivers Intra-DC (000’s)

Data Center Market Watch: 100G market-the switch has turned on

Web-scale core Data Center builds continue into 2017 and next generation data center architectures begin to deploy

Next generation data centers

100G orders in 2016 and took flight in 2017

Ovum expects web-scale greenfield data center to deploy 100G fabric

The market is supply constrained

Retro-fit in the existing base is a sizeable opportunity

2012-2015

2016-2019 2020+

Server ports 10Gbps 25-50Gbps 100Gbps

Server footprint

1 server = 1RU

4 servers per “Sled”

X servers per “Sled”

Intra-data center switch fabric

40Gbps, TOR-Leaf-Spine

100-200Gbps, TOR-Leaf-Spine

400Gbps, TOR bypass

WAN DCI traffic

10G-100G 100G-200G-400G-400G+

Terabits and beyond

Capex $billions

Servers: millions

WAN traffic: Pbps

Data center space: Millions square feet


DCI Application

29%

Other WDM applications

71%

2016 WDM Market: $11.7bn2016 DCI Application: $3.4bn

Data center interconnect projected to be a major driver of optical network growth As the world shifts to the cloud model

In dark fiber constrained regions, CSPs have a significant opportunity

Asia Oceania DCI growth projected to exceed the global average

Data Center Interconnect: A growing portion of the WDM market

Source: Ovum

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Global DCI Forecast by region

North America EMEA Asia Pacific SCA Subsea


Next couple of years

100G PSM4 will continue to grow

100G CWDM4 to continue to grow

Small volumes of PAM4 DR1

~2020 timeframe we see a shift from CWDM4 and PSM4 to PAM4

Cost is key!

PAM4 could be <$200 which would be challenge for CWDM4 to get there BUT (!) PAM4 has to be price competitive

Flattening of 100G volumes due to 400G

Don’t forget about 200G if 400G is delayed

100G Transition to PAM4 DR1

Source: Ovum


100G will continue to grow for the next couple of years

200G will provide a transition to 400G

Timing is key!!!

400G will ramp up fast, taking market share from 100G

Timing is key!!!

Delays in 400G will allow 100G and 200G to last longer

400G is coming to take over

Source: Ovum


Seeing downturn continue but expect upward trend in 3Q17

Technology continues to lead:

Flexgrid the new norm

CDC will begin with leaders and diffuse in time

More Photonics Integration

Coherent migration down towards data center

Intra data center

100G is ramping up and will continue

Questions are being asked on where is 400G and 800G and when will determine 200G rollout

Client side

CFP2-ACO and CFP2-DCO arepicking up

WAN

100G at scale, 200G beginning and ramping

Expansion of capacity is ongoing

Margins are decreasing but still high

Optical Components Market Summary

Source: Ovum


Appendix


Methodology

The data for this report was collected through supplier surveys and interviews. In addition, the forecast was cross-checked with Total OC Forecast Spreadsheet: 2015–21 and the “DCI is reshaping optical networks and fueling component demand” report.

Further reading

Total OC Forecast Spreadsheet: 2015–21, TE0017-000079 (November 2016)40G, 100G, and 200G OC Forecast Spreadsheet: 2015–21, TE0017-000080 (November 2016)Market Share Spreadsheet & Analysis: 3Q16 Optical Components, TE0017-000081 (December 2016) “DCI is reshaping optical networks and fueling component demand,” TE0017-000073 (September 2016)

Author

Kevin Lefebvre, Principal Analyst, Optical Components

[email protected]

Ovum Consulting

We hope that this analysis will help you make informed and imaginative business decisions. If you have further requirements, Ovum’s consulting team may be able to help you. For more information about Ovum’s consulting capabilities, please contact us directly at [email protected].

Appendix


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