Optical Transceiver Market - Growth, Trends, Forecasts (2022 - 2027)

Optical Transceiver Market - Growth, Trends, Forecasts (2022 - 2027)

The Optical Transceiver Market is expected to register a CAGR of 12.63% over the forecast period from 2020 to 2025. With the increasing investment in optical devices and the fast development of optical communication in recent years, the global optical transceiver demand has seen significant growth. Increasing data traffic and the adoption of cloud computing are driving market growth. The development of data center modules is closely related to the optical equipment and their connection methods. Such factors determine whether and how many optical transceivers may be needed in the data center. Since the needs for higher rates are increasing due to applications, such as Cloud computing and 5G, data center equipment in different locations is adapting to that change and migrating to higher prices accordingly.

Key Highlights

• Moreover, server access switch speed migration is increasing during the last five years. The enterprise server access gradually changed from 1G-10G to 10G-25G, while the mega cloud server access gradually changed from 10G-40G to 25/50G-50/100G. Since the equipment is becoming more advanced with higher rates, the modules must have the same data rates to assure the overall network performance. In recent years, the industry saw customers shift from their 1G connections to 10G on the edge of their networks. Additionally, many customers optimized their fiber resource by deploying passive xWDM and inclined toward 10G CWDM or DWDM network models as part of their metro and backbone networks.
• In the case of 100G, various form factors, such as CFP/CFP2/CFP4 and QSFP28, compete in size and market adoption. However, QSFP28 is expected to maintain a prominent position in demand. Furthermore, the costs of 40G QSFP+ and 100G QSFP28 lasers have declined in the wake of these modules being mass-produced and adopted. Due to this, even more operators and data centers are expected to switch their backbone lines to these speeds. Among the high-end optical transceivers in the market, 10G-100G AOC/DAC and 10G-SFP-T are expected to hold a prominent share of the demand. In recent years, the reduced manufacturing cost of 10G-SFP-T has made these offerings affordable and accessible among operators and data centers, connecting their device built-in 10G copper ports with switches or PCI cards 10G SFP+ optical ports.
• The market is seeing a surge of new form factors that are steadily contributing to the growth of the optical transceivers market. Over the coming years, 25G SFP28 is expected to play a significant role in data center interconnections. Therefore, this helps efficiently migrate toward 100G with four lines offering improved throughput between Servers and Top of the Rack Switches. In the future, 200G/400G connections are expected to gain traction from 2021, due to this QSF-DD, 200G QSFP56, and 400G CFP8 are going to play an essential role in a high-performance computing environment and the telecom network core. Over 2020, the optical transceivers are expected to see a significant technological revolution and see growth in embedded and high-density integrated optical transceivers. In January 2020, FireFly demonstrated embedded optical modules that consumed less power and were optimal for liquid cooling purposes.
• Apart from innovation, the industry is seeing an increased number of M&A activities, along with partnerships to expand its market presence and support prominent vendor's data center and telecommunication module offerings. In November 2019, Broadcom reacquired optical transceiver assets from Foxconn. The company combined the former Foxconn assets with its existing Fiber Optics Product Division to form a new business unit. However, the sharp difference in growth revenues of optical transceivers was caused by lower sales expectations in 2020 due to the COVID-19 pandemic. Besides, the total revenue is expected to moderately increase in 2021 when the effect of the pandemic ends. Indeed, COVID-19 is expected to significantly affect the telecommunications industry globally and sales of optical transceiver modules.

Key Market TrendsData Center Application is Expected to Hold Significant Share

• With the growing demand for data storage and network traffic, data center providers are increasingly looking to shift toward higher storage capacities. Thus, the need for hyperscale data centers is expected to increase over the forecast period further. With the advent of 5G, the demand for data centers is expected to increase over the forecast period. According to Credit Suisse, revenue from global hyperscale data centers is expected to reach USD 800 billion by 2020. According to Cisco Systems, in 2019, the global number of hyperscale data centers crossed 500 marks and stood at 504, with nearly 40% of these facilities in North America. Moreover, the global investment in data center expansion and new facilities is growing exponentially to sustain the global data demands.
• The rapid growth of cloud computing and big data applications has meant that data centers have to handle a doubling in traffic every one to two years. To meet the demand for high-bandwidth data transmission while maintaining the same cost, power consumption, and size of the data center, it is critical to increasing the optical transceiver speeds with innovation in the field of optical interconnect technologies. Silicon-Photonic is a crucial technology to address this challenge. It significantly reduces the physical size of transceivers while simplifying the design and production by integrating a large number of optical components onto a single silicon photonic chip. The technology utilizes existing CMOS manufacturing processes to achieve wafer-scale testing and packaging, thereby significantly reducing the production cost of photonic chips.
• Alibaba Cloud has been significantly investing in SiPh technology in recent years. With the help of partnership and joint technology development with Hisense Broadband and Elenion Technologies, Alibaba Cloud is engaged in the production supply chain, from SiPh chip design, testing, and packaging, to the SiPh-based optical transceiver design, assembly, packaging, and testing. In September 2019, Alibaba Cloud, the data intelligence backbone of Alibaba Group, announced the launch of a 400G DR4 optical transceiver based on Silicon-Photonic (SiPh) technology to support its next-generation data center network. The latest transceiver will be utilized in Alibaba Cloud's global data centers starting in 2020 and will increase the network speed by four times compared with current 100G optical transceivers.
• In September 2019, InnoLight Technology (Suzhou) Ltd. announced the availability of an industry-first 400G QSFP-DD ER4-Lite optical transceiver at ECOC 2019 in Dublin, Ireland. Besides, InnoLight showcased a comprehensive portfolio of 400G optical transceivers, including 400G QSFP-DD, 400G OSFP, and 100G QSFP28 Single Lambda optics. The QSFP-DD ER4-Lite optics is designed to support 400G bandwidth over 30~40km transmission distance in a single duplex fiber. It offers the highest faceplate density in the QSFP-DD form factor with a low power consumption of 10W or less. This module is an ideal solution to address the ultra-high bandwidth need for connecting data center clusters on a campus or metro environment.

Asia Pacific is Expected to Witness Fastest Growth

• The demand for optical transceivers is gaining significant traction in the Asia-Pacific region mainly due to the increasing requirement of optical modules by datacenter operators is very strong in China, pushed by the local government, whose strategy is focused primarily on the 5G deployment and the development of cloud data centers. In May 2020, the Chinese government announced to invest an estimated USD 1.4 trillion over six years to 2025, calling on urban governments and private tech giants like Huawei Technologies Co. to lay fifth-generation wireless networks is expected to significantly boost the adoption of data centers and telecommunication infrastructure in the region which in turn is expected to create a positive impact on optical transceivers.
• In March 2020, Hengtong Rockley Technology Co., Ltd., a China-based company, announced the release of a 400G QSFP-DD DR4 optical module based on the next-generation Silicon Photonics technology data center network. The latest 400G QSFP-DD module is one of the first 400G Silicon Photonics optical module product revealed by Hengtong Rockley. The DR4 optical module will be used in next-generation cloud-scale data center low-cost, low-power consumption optical connection solutions. The deployment of 400G transceivers enables datacenter networks to deliver a 4x increase in network speed compared to existing deployments using 100G.
• In March 2020, Huawei has announced that it has completed two 800G coherent trials on live networks. One of them is with Turkcell, and the other one was with China Mobile Zhejiang. The announcement follows Huawei's launch of an 800G tunable optical module at the end of February 2020. The Turkcell trial took place between two data centers in Istanbul using Huawei's ultra-high-speed service processing boards, which support the programmable and flexible adjustment of multiple modulation formats ranging from 200G to 800G. The system is expected to monitor complex link environments on live networks in real-time to learn and optimize network transmission performance automatically. This ensures optimal spectral efficiency and transmission performance while achieving the single-fiber capacity of 48 Tbps.
• In July 2020, Cisco Systems, Inc. and Acacia Communications, Inc. announced to remain actively engaged with the State Administration for Market Regulation of the People's Republic of China (SAMR) in pursuit of approval of their merger plans as Cisco touted to buy Acacia Communications for optical transceiver and components play. SAMR approval is a condition of Cisco's purchase of Acacia. SAMR approval is required for the combined company to continue to do business in China. Cisco announced the merger agreement on July 9, 2019; it is unknown when Cisco and Acacia applied for SAMR approval and whether their application expires after a year. Cisco and Acacia said that the SAMR approval is the last they need to receive, with the United States, Germany, and Austria already signing off.

Competitive Landscape

The Optical Transceiver Market is quite competitive moderately fragmented due to the presence of significant players such as II-VI Incorporated, Accelink Technologies, Huawei Technologies Co. Ltd, Broadcom Inc., Source Photonics, Inc., etc. The players in the market are frequently launching innovative solutions, forming partnerships, and mergers to increase their market share and expand their geographical presence.

• February 2020 - II‐VI Incorporated announced its high-speed indium phosphide (InP) electro-absorption modulated lasers (EML) for data centers and the 5G optical access infrastructure. II-VI's EML devices are designed for high signal integrity, enabling transceiver modules operating at data rates of 100, 200, 400, and 800 Gbps for high-speed data center connectivity and for optical access networks that provide fronthaul, mid-haul, and backhaul connectivity to 5G wireless base stations.
• September 2019 - Source Photonics announced a comprehensive portfolio of 50Gb/s products serving 5G mid-haul applications. The portfolio leverages the company's high-speed optical transceiver development and high-volume shipments into the wireless, data center, and routing applications, resulting in a broad portfolio of optical transceivers supporting data rates 125Mb/s to 400Gb/s and transmitting between 300m and 40 km.

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Companies Mentioned
 
II
VI Incorporated
Accelink Technologies
Lumentum Operations LLC
Sumitomo Electric Industries Ltd
Fujitsu Optical Components Limited
Reflex Photonics Inc.
Source Photonics, Inc.
Huawei Technologies Co. Ltd
Broadcom Inc.
HUBER+SUHNER Cube Optics

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