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Optical Components MarketECOC Market Focus 2017
Kevin R. Lefebvre, Ph.D.
Principal Analyst
Ovum
Ovum | TMT intelligence | informa2 Copyright © Informa PLC
State of the Nation
Increase in Data Centers Increase in Mobile
Ovum | TMT intelligence | informa3 Copyright © Informa PLC
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)
Ovum | TMT intelligence | informa4 Copyright © Informa PLC
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
Microsoft
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
Ovum | TMT intelligence | informa5 Copyright © Informa PLC
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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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
Ovum | TMT intelligence | informa6 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa7 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa8 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa9 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa10 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa11 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa12 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa13 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa14 Copyright © Informa PLC
Wheel of Client Module Fortune:
Ovum | TMT intelligence | informa15 Copyright © Informa PLC
Datacom
Ovum | TMT intelligence | informa16 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa17 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa18 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa19 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa20 Copyright © Informa PLC
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
Ovum | TMT intelligence | informa21 Copyright © Informa PLC
Appendix
Ovum | TMT intelligence | informa22 Copyright © Informa PLC
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
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
Ovum | TMT intelligence | informa23 Copyright © Informa PLC
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