The Optical Transport market has continuously evolved, giving consumers around the world one of the most precious assets—fast, affordable bandwidth. Whether it is 5G, home broadband, cloud services, or videos of cats, the one technology that enables the existence of these services is optical. So, it is no wonder that the one equipment that service providers (telecom, cable, cloud, etc.) need to continuously invest in and purchase is Optical Transport gear. Luckily for these buyers, market demand has grown at a rate fast enough for optical system and component manufacturers to continuously invest their R&D money towards developing better optical technology that transports more bits at an even better cost. What if this changes in the future?
Consider this: every generation of optical technology costs more to develop. Meanwhile, Shannon’s limit is around the corner, and fewer optical companies generate enough profit to maintain this pace of innovation. I won’t address this long-term concern here, but considering this, I have listed a few trends to watch in 2020.
- Selective vertical integration will continue. System houses such as Ciena, Huawei, and Infinera will continue to invest in developing key component technologies to ensure they capture a significant share of the optical systems market and reduce the bill-of-materials (BOM) on highly advanced coherent line cards. When Cisco closes its acquisition of Acacia, the number of Optical Transport vendors that in-source high-end components (coherent DSP, TIA, drivers, and modulators) will increase. In 3Q19, these four vendors had approximately 60 percent share of the WDM market. If we also consider vendors that have in-house coherent DSPs, this share jumps to 70 percent and could potentially increase if additional vendors decide to “make” rather than “buy.”
- Coherent 800 Gbps-capable line cards will enter the market. We know of three vendors—Ciena, Huawei, and Infinera—that will launch 800 Gbps-capable line cards by the end of 2020. Ciena will be first to market, closely followed by Infinera, and then Huawei. These new line cards will use the latest optical components (90+ Gbaud, photonic integration) and most powerful coherent DSPs with probabilistic constellation shaping that will bring the wavelength performance to near Shannon’s limit.
- A faster shift away from 100 Gbps wavelengths to 200 Gbps and 400 Gbps wavelengths. The use of 200 Gbps wavelengths has already been rising to maintain a steady price-per-bit decline. With the availability of 800 Gbps-capable line cards, the market will increasingly deploy 400 Gbps wavelengths this year. That is, with 800 Gbps-capability, a line card can be employed at 400 Gbps across longer span lengths, making long haul 400 Gbps at an economical price point a reality.
- Coherent 400 Gbps in a pluggable form factor is here. There is no denying that coherent optics will shrink into a pluggable form factor. Both Inphi and NeoPhotonics have announced tests and trials of 400G ZR in QSFP-DD and OSFP form factors as well as a 400G ZR+ version in a CFP2-DCO. It is still a little early in the year, but we believe systems using these pluggable 400 Gbps modules will enter the market by the end of 2020. However, significant sales volume may not occur until 1H21.
- Adoption of IPoDWDM will increase. IPoDWDM isn’t a new concept. It has been available for over a decade, and Cisco has done quite well (relatively speaking) selling IPoDWDM systems. However, this architectural approach never really obtained wide-spread adoption. We think one of the many reasons behind this is that the target market was on core routers stationed in the long-haul network. A better opportunity for IPoDWDM, as evidenced by Inphi’s sales of ColorZ to Microsoft, lies in selling IPoDWDM in metro access applications such as data center interconnect. Therefore, with 400G ZR in a QSFP-DD form factor, we should see a wider adoption of IPoDWDM in metro applications such as data center interconnect and distributed access architecture (DAA).
- System vendors will move into the components market. This may be a more “why not?” situation. If a system vendor develops a component, why not make it available for others to buy, since selling any components will help offset the company’s R&D costs? Also, at the end of the day, it is a good hedge against IPoDWDM. If you don’t win the system business, why not try to win the optical components portion?
Each of these listed trends are by no means revolutionary. In fact, each has been in the making for many years to sustain one goal—fast, affordable bandwidth.
