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Pressure on Optical Component Pricing

Date: 2014-05-05
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LightCounting’s market forecast database is freshly updated and a preview is available to clients for questions and comments for the next 2 weeks. The database will be finalized on July 31st and released along with the forecast report in early August. As usual, the database covers several market segments including optical components and modules for DWDM, SONET/SDH, Ethernet, Fibre Channel, FTTx, wireless backhaul and fronthaul networks and parallel optical interconnects.

Several of these market segments are growing ahead of our previous expectations in 2014, including the market for DWDM products led by accelerated deployments of 100G transport systems. This market tripled last year in terms of the number of 100G DWDM ports shipped and it is on track to double in 2014. LightCounting estimates that more than 50% of these ports will be deployed by Huawei and ZTE, supporting upgrades of long-haul and metro systems in China and many other countries.

This  seems like great news for suppliers of 100G DWDM component and modules, but the cost of doing business with Huawei and ZTE is conforming to their very aggressive price targets. As a result, the updated forecast for the DWDM market projects higher than previously expected volumes, but our projections for sales revenue growth remained unchanged.

Deployment of 100G DWDM in the metro was one of the main discussion points at the IIR WDM & Next Generation Optical Networking conference, which took place June 23-26, in Nice, France. The theme of the conference was ‘100G and beyond’ and it drew more than 700 attendees from 65 countries. The consensus was widespread at the conference; coherent 100G is the preferred technology today for metro applications. This was confirmed by Ciena, Ekinops, ECI, MRV, and Orange, among others. Operators mentioned that metro networks often have poor quality fiber with high PMD; hence coherent transmission is favored because it does not require the use of dispersion compensation modules. One of the equipment suppliers mentioned that 100G “has a 2-month payback” based on today’s prices for 100G services, verses the cost of a 100G circuit on their equipment.

While 100G is all the rage today, it is clear that 400G and higher speeds are coming. All the major equipment and component vendors are developing solutions for both 400Gbs and terabit speeds. Huawei recently announced a 400G metro trial, and Spirent and Xilinx demonstrated a single-chip (IC) 400G solution at the conference. Unlike previous lower speed technology advances, 400G is likely to see commercial acceptance first in the metro market, where the reach requirements are lower and can be met more easily. Seemingly every vendor of core optical transport equipment has done a multi-terabit transport trial. An essential capability to the operation of flexible terabit networks is the ability to allocate variable amounts of channel spectrum to particular circuits, creating what are known as ‘superchannels’.  The ‘flexgrid’ approach is a key element of virtually all 400G and terabit solutions being developed today.

A live demo of a 400G DWDM transport system was also a highlight of the exhibit at the LightWave Optical Innovation Summit, which took place in Austin, Texas on July 14-16th. The demo was presented by XKL – a small equipment supplier based in the US, which specializes in delivering optical transport products for connecting the campuses of large and medium size enterprises. The simple and very compact design of the 4x100G linecard used in their demo was the key feature extolled in the message delivered by XKL. The company does admit that a majority of their clients are satisfied with 10G products today and that it was hard to even obtain 100G CFP optics for the demo, but XKL is clearly planning to offer 100G and even 400G products to enterprise customers.

Private transport networks built by enterprise companies was one of the hot topics discussed at the LightWave event. One panel discussion was moderated by a representative of BTI systems – one of the mid-size equipment vendors, focused on this emerging market. Apparently, high prices and poor customer support for leased lines offered by service providers makes building your own network more effective starting with just four lines of 10G connectivity. The happiest person on this panel was the CEO of Allied Fiber – a dark fiber provider in the US. He could not hide the radiant smile of a landlord looking at an increasing flow of tenants for many years if not decades to come.

It is certainly encouraging to see more mid-size companies, not just “the Googles of the world” building private networks and using the latest technologies. The latest announced wave of mergers among leading U.S. service providers confirms their shifting focus to a more lucrative business of content rather than service delivery. It is not surprising to see more businesses taking full control of their networking needs. Let us hope there is enough dark fiber available for them. The industry could use another segment of customers to sell DWDM transport systems to.

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