Optical Transceiver Market 2018

An optical transceiver is an integrated circuit chip (IC) that transmits and receives data with the help of a fiber optic cable rather than an electrical wire. A fiber optic cable transmits high speed and large volumes of data efficiently with the help of light beams and pulses along solid transparent cables. Optical transceivers  was valued at USD 2.71 Billion in 2015 and is expected to reach USD 8Billion by 2022, at a CAGR of 13.5% between 2016 and 2020.Optical Transceiver Market Research Report – Forecast to 2023 -Report image 00

The most significant factor driving the global optical transceiver market is the increasing Internet penetration , data traffic , growing demand for smartphones and other smart devices, and growing adoption of cloud-based services. which, in turn, is leading to the rise in demand for optical transceivers.Optical transceiver, direct attach cable (DAC) and active optic cable (AOC) have evolved dramatically to catch leading edge broadband network capacity.

However, the past decades have witnessed massive adoption of optical transceivers. According to the latest market research report on the optical transceiver market. The global market for optical transceivers eked out respectable year-over-year growth (+8%) in Q3 2018 despite headwinds faced by several vendors.  Strong year-over-year sales growth was reported by II-VI (+20%), Accelink (+18%), Innolight (+18%), Lumentum (+49%), Neophotonics (+15), and Sumitomo (+12%), while quality issues at AOI (down 36% y-o-y), and incomplete recoveries from ZTE’s 2Q18 shutdown at Acacia (down 10% y-o-y, despite being up 46% vs. Q2) and Oclaro (down 15% y-o-y, while up 9% sequentially) tamped down the market average is expected to accelerate at a CAGR of over 10% during the forecast period. Migration from copper wires to optic fibers is another key factor triggering the growth of the market.

On the other hand, the migration of OTNs toward WDM architecture is an emerging trend in the optical transceiver market. The market of optical transceivers is expected to grow at a significant rate due to growth in the adoption of fiber optical network market dynamic was also present in company guidance for Q4 2018, which ranged from strong growth to seriously disappointing.  II-VI continues to benefit from strong demand for ROADMs and 980 nm pump lasers, and guided for 20% y-o-y growth.  Acacia and Neophotonics guided for mid-teens growth in sales on the back of new CFP2 and 600G products (Acacia) and increased sales to Huawei (NeoPhotonics).

Lumentum had guided for 14% growth, but had to revise that to minus 15% after ‘a large consumer electronics customer’ (i.e. Apple) called to say it wouldn’t need nearly so many VCSEL arrays in 4Q as it first thought.  And AOI is still struggling with a quality issue that is limiting its ability to ship everything customers want.

Figure: Q4 sales guidance of optical components manufacturers

The fundamental drivers of growth in the optical components datacenter segment remain strong with the exponential increase need for storage, processing, and data transfer capacity of data communication & telecommunication network.Internet Content Providers (ICPs) spent 66% more on property plant and equipment in the first three quarters of 2018 than in the same period in 2017.  Datacenter storage, server, and switch makers benefited from this largess, growing sales 14% year-over-year through September, despite the continuing migration towards open systems and white box manufacturing. And while sales for datacom equipment vendors as a group were down 3% sequentially in the third quarter of 2018, seven – Arista, Dell, Extreme, Inspur, Lenovo, Mellanox, and NetApp – reported double digit sales growth compared to 3Q17. Sequential growth was more mixed, indicating that although ICPs are spending at a new higher level in 2018, they are not increasing spending through the year.

The optical transceivers market has been segmented on the basis of application, wavelength, data rate, and geography. One of the potential contributors in this industry is SaaS (Software as a Service) Data centers are selecting up on quicker optical GB (Gigabit) Ethernet networks.Communications Service Providers held capital expenditures flat in the first three quarters of 2018, on a year-over-year basis. While commercial 5G services were launched in September 2018 by Verizon, its four city rollout and other operators’ equally small initial deployments are not yet of a scale to require an appreciable increase in capex. China’s 5G rollout is about a year behind Verizon’s. Publicly reported sales figures from telecom equipment makers were down 2% year-over-year through September 2018, in part because of ZTE’s forced shutdown in 2Q18. Like the optical component market, though, the average belies a wide range of performance. Ciena and Infinera both reported double-digit y-o-y sales growth for 2018 through the end of September, while ZTE was down 20%, and Ericsson and Fujitsu sales were also lower this year compared to 2017.

DWDM port shipments, a more direct indicator of optical component demand in the CSP segment, rose 48% year over year in 100G port-equivalents.  While 100G ports only grew by single digits, 200G-capable ports rose 189% and 400G-capable shipments, though still small, increased by 272% compared to 3Q17. The outlook for 2019 is for continued growth with the occasional need for storage, processing, and data transfer capacity of data communication & telecommunication network are rising exponentially. The need for speed continues to drive adoption of higher priced modules in all three segments. Products expected to have particularly strong growth in 2019 include 100GbE Ethernet transceivers in several flavors, 200G DWDM (CFP2 ACO, CFP2 DCO), and 25G SFPs for 5G fronthaul.

Not surprisingly, the biggest threat to 2019 market growth is the deteriorating U.S.– China trade relationship, strained to the breaking point by the recent arrest of Huawei’s CFO. If Huawei gets hit with a sales ban like ZTE, the impact could be as bad or even worse the ZTE shutdown. More generally, trade tariffs or just the threat of tariffs could disrupt existing supply chain relationships, as companies move manufacturing or change suppliers from one country to another to eliminate tariff costs. Our forecast assumes the industry is able to weather this storm without suffering a significant impact, but we also know some potholes are unavoidable, despite our best intentions.

Obviously, Some of the major players in the optical transceivers market include Sumitomo, Vitesse, Agilent Technologies, NTT, Fujitsu, Cube Optics, Reflex Photonics, GigPeak, Huawei, IPG Photonics, Broadcom Oclaro, Finisar Lumentum, Acacia, Emcore, Furukawa Electric, Broadcom, NeoPhotonics, and Accelink Technologies. The newly published Quarterly Market Update provides data and commentary on the Q3 2018 financial results of CSPs, ICPs, networking hardware, optical components, modules and semiconductor chipmakers. It also includes shipment data through Q2 2018 and estimates for Q3 and Q4 2018, for more than 100 optical transceiver and WSS products, obtained via LightCounting’s proprietary vendor shipment survey.