Dell’Oro Group published an update to the Optical Transport Five-Year Forecast report in January 2021

Although we continue to be concerned with the high level of uncertainties that exist due to the COVID-19 pandemic, we believe that the Optical Transport market will maintain its positive momentum for the next five years. This long term outlook is based, fundamentally, on the belief that bandwidth demand will continue to increase for many more years in the future as it has for the past decade—one that included the start of a pandemic.

This of course does not mean the Optical Transport market will grow unencumbered for the next five years. Because while bandwidth demand continues to grow, we anticipate the Optical Transport market will face challenges such as the three outlined here:

• When WDM technology reaches Shannon’s Limit, it will be increasingly difficult to drive down the average price-per-bit of bandwidth by increasing spectral efficiency. Yet, we forecast the average price-per-bit will decline at the same rate in the next five years as it did in the past five years.
• The entry of coherent 400 Gbps in a small form factor pluggable such as QSFP-DD opens the door for a change in architecture to IP-over-DWDM and away from traditional Optical Transport systems. Component manufacturers have already been trialing and sampling 400ZR pluggable optics in late 2020, and we think demand will be material by late 2021.
• In the past five-year period, much of the Optical Transport market growth was due to a couple high growth markets—China and data center interconnect (DCI). However, as history has proven many times, markets do not stay at a high growth rate forever. Will this be the case for China and DCI as well?

But even with these market challenges, we are optimistic about the future of Optical Transport and believe that the market for optical gear will rise for many more years. In this latest January 2021 publication, we are forecasting that the cumulative Optical Transport market revenue will be nearly $85 billion for the years that include 2021 through 2025.

Our growth projections are driven by the anticipated need for WDM systems in both metro and long-haul applications, which combined is expected to comprise nearly 98 percent of the total Optical Transport equipment market.

Within the WDM market, we expect the continuous drive to higher wavelength speeds to occur. Hence, while 100 Gbps coherent wavelengths contributed the majority of revenue before, we forecast the largest contributor will be 200 Gbps in the near term period, and then 400 Gbps in the outer forecast period. In all, we are forecasting 200+ Gbps wavelength shipments to grow at a five-year CAGR of 30 percent.

 

About the Report The Dell’Oro Group Optical Transport 5-Year Forecast Report offers a complete overview of the Optical Transport industry with tables covering manufacturers’ revenue, average selling prices, unit shipments, wavelength shipments (by speed up to 1.2 Tbps). The report tracks DWDM long haul, WDM metro, multiservice multiplexers (SONET/SDH), optical switch, optical packet platforms, data center interconnect (metro and long haul), and disaggregated WDM. Click here to learn more about the report or contact us at dgsales@delloro.com.

Dell’Oro Group published an update to the Microwave Transmission & Mobile Backhaul Transport Five-Year Forecast report in January 2021

The following are key takeaways from the newly released report:

• • We remain concerned about the COVID-19 pandemic, and believe it will continue to influence the mobile backhaul and microwave transmission markets this year, as it did throughout 2020. If additional lockdowns do occur, we expect that similar to last year supply-chain issues will cause a slowdown in deployments. Also, as a result of the pandemic’s damage on the 2020 world economy, we remain concerned that a second recession could occur in 2021 or 2022, depending on government economic policies this year. That said, we are optimistic that as COVID-19 vaccines are distributed, service providers will find the confidence to invest in their networks.

• • For the cumulative five-year forecast period that includes 2021 through 2025, we predict the Mobile Backhaul Transport market revenue, consisting of fiber/copper and wireless systems, to be $25 billion. During this period, the cumulative Microwave Transmission market revenue, driven mostly by mobile backhaul, is expected to be just over $16 billion.

• • We expect the rollout of 5G to be the main driver of market growth for both the Mobile Backhaul Transport and Microwave Transmission markets. We estimate that 67 percent of Mobile Backhaul Transport revenue and nearly half of Microwave Transmission revenue will be generated from equipment deployed in 5G networks by 2025. In addition to backhaul, we believe 5G will increase the use of Fronthaul.

• • With each generation of mobile radio technology, the use of Fiber/Copper Systems for Mobile Backhaul Transport has increased, and naturally, we predict this share will continue to rise with 5G deployments. Therefore, we forecast Fiber/Copper System shipments to exceed those of Wireless Systems throughout the forecast period. However, the increasing use of Fiber/Copper as a share of link shipments will likely plateau at approximately 70 percent since many operators will still rely on Wireless Systems such as point-to-point Microwave Transmission.

• • The Microwave Transmission market is forecast to grow at a low single-digit percentage rate for the next five years. We predict that Packet Microwave will be the only microwave transmission technology segment that grows over the next five years, driven by rising demand for full outdoor units and E/V Band systems. We forecast Packet Microwave revenue to grow at a 10 percent CAGR.

• • E/V Band system sales have been relatively modest but steadily rising in use. Due to higher capacity requirements for 5G and spectrum constraints on lower frequency bands, we expect growing demand for E/V Band systems. Therefore, we forecast annual E/V Band shipments to more than triple by 2025.

About the Report The Dell’Oro Group Microwave Transmission and Mobile Backhaul 5-Year Forecast Report offers complete, in-depth coverage of the market with tables covering manufacturers’ revenue, ports/radio transceivers shipped, and average selling prices by capacities (low, high and E/V Band). The report tracks point-to-point TDM, Packet, Hybrid Microwave as well as full indoor and full outdoor unit configurations, Mobile fronthaul and backhaul, 5G backhaul, and Fiber/copper and wireless. To purchase this report, please contact dgsales@delloro.com.

With the overall RAN market now growing at the fastest pace in nearly ten years and on track to approach revenue levels not seen since the Chinese operators rolled out 3G, one of the fundamental questions is simply whether there is more room to grow with this elevated baseline, keeping in mind the historically tight coupling between RAN revenue and wireless capital intensity. And if so—where will this growth come from?

We believe that there is room for expansion over the near term as the early adopters continue to roll out 5G at an extraordinary pace. The shift from 4G to 5G is accelerating at a torrid pace and much faster than expected. This is not because operators expect to raise ARPU or because they are anticipating significant near-term revenue upside from new applications. Instead, the main driver is on the supply side, and the ability of the operators to reduce cost-per-bit and to differentiate on the packaging with larger data plans.

After the RAN market reaches a new all-time high, we project that total RAN revenues will give up some gains in the post-peak MBB rollout phase. At the same time, we are anticipating a somewhat less severe pullback relative to the contractions following the 3G and 4G peaks in China.

While some deviation in the capital intensity ratio is expected in the peak coverage rollout phase, this forecast, with the post-peak pullback projected to approach two-thirds of previous declines, rests heavily on the assumption that the aggregate upside of these smaller non-traditional growth opportunities driven by new fixed and enterprise capex will curb the downside somewhat in the outer part of the forecast.

The main reason we remain excited about the opportunities ahead, even if we are still operating in uncharted economic territories, is the fact that the somewhat tepid high-level outlook is masked by all the ongoing parallel efforts taking place in addition to the shift from 4G to 5G, opening up opportunities for both the incumbents and new entrants.

Other takeaways from the January 2021 5-Year RAN Forecast include:

• The Asia Pacific region is expected to dominate the overall RAN revenue mix.
• Total macro and small cell radio shipments are projected to surpass 50 M over the forecast period.
• mmWave investments are growing rapidly, with total mmWave RAN revenues on track to more than double by 2025.
• Fixed Wireless Access (FWA) Radio Access Network (RAN) investments, including mobile network and dedicated fixed networks, are projected to comprise a growing share of the overall RAN capex envelope over the next five years, reflecting the size of the potential upside, various technological advancements, and improving market sentiment for both basic and high-performance connectivity.
• Private wireless RAN revenues are still small relative to overall MBB investments but activity is on the rise, underpinned by a new spectrum, an improving device ecosystem, technology improvements, and the emergency of new use cases that require cellular QoS.
• Open RAN is here to stay. Total Open RAN revenues are projected to account for more than 10% of the 2025 RAN market.

 

About the Report Dell’Oro Group’s Mobile RAN 5-Year Forecast Report offers a complete overview of the Mobile RAN industry by region – North America, Europe, Middle East & Africa, Asia Pacific, China, and Caribbean & Latin America, with tables covering manufacturers’ revenue, transceivers or RF carrier shipments, unit shipments for 5G NR Sub 6 GHz, 5G NR mmW, and LTE macro and small cells. The report also include projections for Massive MIMO and Open RAN. Click here to learn more about the report or contact us (dgsales@delloro.com) for the full report.

 

 

The Market Returns to Normalcy

The COVID-19 pandemic resulted in a tumultuous year for the Service Provider (SP) Router market. The onset of the pandemic in the first quarter of 2020 caused an immediate downturn in the SP Router market when supply chains were severely disrupted. We estimated that the supply chain disruptions caused a $450 million shortfall in the first quarter, essentially eliminating all of the full year 2020 market growth that we projected prior to the pandemic. Following the initial shock of the pandemic, vendors made remarkable adjustments to their procurement, manufacturing, assembly, and distribution processes to get their businesses back to pre-pandemic levels.

From a demand perspective, the pandemic forced SPs to deal with the conflicting dynamics of managing network traffic surges and making network investments under uncertain economic conditions. The traffic surges—owing to millions of people relying on the Internet during lockdowns—were handily absorbed by networks without substantial capacity upgrades. Ultimately, the unexpected growth in traffic proved the robustness and resiliency of network architectures.

In the ensuing months, traffic growth moderated and even contracted in some cases. Nonetheless, IP networks are transporting more traffic than ever and are likely running at higher utilization levels compared to pre-pandemic times. We expect SPs to boost network capacity and reset their operational metrics for the new traffic levels and patterns—returning to pre-pandemic practices.

 

400 Gbps Routers Become Meaningful

The deployments of routers supporting 400 Gbps ports and optical modules will enter the early adopter stage in 2021. While large-scale deployments will be limited, there will be enough shipments to drive growth of the SP Core Router market for the first time since 2017.

 

IP Mobile Backhaul Upgrades Accelerate

The China market will remain at the forefront of the 5G IP backhaul market. Telecom SPs in China will continue making large-scale upgrades to their IP backhaul networks simultaneously with their aggressive 5G RAN buildouts—an approach that differs from most other SP’’s 5G RAN deployments. In markets other than China, upgrades of IP backhaul networks will proceed at a more modest rate—in some cases to support 5G rollouts, in other cases to address 4G traffic growth and the eventual transition to 5G.

 

Disaggregated Routers Become A Real Thing

Disaggregated routers—white box hardware with independent operating system software—are set to capture meaningful market share in 2021. Early adopters are moving from trials to live deployments, but the timing of manufacturers’ revenue is difficult to predict, especially with new software. Initial use cases will be for mobile backhaul (cell site gateways) and backbone networks.

Every market and industry has a cycle. In fact, some industries are comprised of many different cycles that, in combination, result in changes to the amplitude and direction of market growth. Among the different cycles that influence the Optical Transport market, I think the best cycle to highlight for 2021 is the Product Cycle.

As you know, the Optical Transport equipment market is a research and development (R&D) intensive industry that goes through a multi-year product cycle, consisting of idea formulation, development, introduction, and main stream deployment. Hence, grand ideas and proof of concepts announced years ago steadily build towards commercialization and main stream adoption over the course of a few years.

So, which phase are we predicting for 2021? I would say that we are moving from the product introduction to the main stream deployment phase in many areas of the Optical Transport market. Therefore, many of our market thoughts for 2021 revolve around the adoption of new products (many of which were first announced over two years ago). The following are a few of our expectations for product adoption in 2021:

Disaggregated WDM system sales will expand beyond data center interconnect (DCI) applications.

Open and disaggregated WDM systems may have been introduced years ago, but the main buyers were hyperscale companies for DCI. Recently, however, the use of these systems have started to expand beyond these Internet content providers (ICPs) and into a broader customer base that includes cable multiple-system operators (MSOs) and telecom operators.

600 Gbps and 800 Gbps-capable line cards will enter main stream adoption.

Although 600 Gbps-capable line cards entered the market over a year ago, the rate of adoption was low for various reasons that included the pandemic. However, we believe the adoption curve for 600 Gbps-capable line cards entered an inflection point and that it is positioned for rapid growth in 2021. At the same time, we believe 800 Gbps-capable line cards will also increase next year, considering the strong shipments so far with only one manufacturer. We anticipate one or two additional vendors will be shipping 800 Gbps-capable line cards in volume next year, increasing the pool of suppliers. All combined, we predict that shipment of 600 and 800 Gbps-capable line cards will more than triple in 2021 and drive much of the capacity expansion in the year.

400 Gbps everywhere.

Although we are projecting a large growth in 600 Gbps and 800 Gbps-capable line cards, we are expecting many (most likely the majority) of those line cards will be used to supply 400 Gbps wavelengths in metro, regional, and long haul networks. That is, we believe the use case for operating line cards at its highest modulation such as 64 QAM will be limited and that the higher usage will be at lower modulations such as 16 QAM and 32 QAM. This is since the lower modulations will offer better performance. In addition, 400ZR is entering the market for use in metro access applications such as DCI. We expect most of these will be in a QSFP-DD form factor in both optical and Ethernet systems. So, by the end of 2021, we predict that 400 Gbps wavelengths will be in heavy demand in all parts of the optical network.

In some ways, we have an optimistic outlook for the Optical Transport market in 2021. Partly, this is because we think it is a critical component in keeping the world connected. But also, we are hopeful that the pandemic that caused hardship in 2020 will be largely behind us in 2021 as COVID-19 vaccines become widely available. We are, of course, concerned that the timeline for returning the world economy to the pre-pandemic levels will take much longer than a year and that, depending on government initiatives, there is a small chance economic recovery in some countries could decelerate next year.