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Technical Insight

Ethernet evolution to drive VCSEL ramp

The 10 Gigabit Ethernet fiber-optic datacom standard will give makers of optoelectronic chips access to a mass market, reports Michael Hatcher.

With capital expenditure by service providers growing, manufacturers of fiber-optic equipment, modules and components now have less reason to whine than in recent years. And according to the market analyst company Communications Industry Researchers (CIR), the growing popularity of the latest Ethernet data communications standard should soon add some vigor to that recovery process.

Having observed the relatively dormant 10 Gbit/s Ethernet (10G) market over the past five years, CIR now believes that this protocol is showing signs of becoming the general-purpose successor to the widely deployed Gigabit Ethernet (1 Gbit/s operation) standard. Unlike the copper-based Gigabit Ethernet generation, 10G is inherently a fiber-optic standard, so it could offer optical equipment manufacturers, module suppliers and component vendors access to the mass market that the industry has long craved.

Opportunities for 10G

"10G interfaces, which just a few years ago would have appeared only in a telecom environment, or occasionally on the largest Ethernet switches, are now becoming common on servers and on modular Ethernet switches," says CIR. Although 10G is far from ubiquitous - and unlikely to feature on a standard PC for several years - CIR says that there is now a genuine opportunity for makers of 10G components, who can expect to sell large volumes of semiconductor chips that emit and detect rapidly modulating laser light.

The type of compound semiconductor components affected by this expected surge in demand are those found in the 10G modules sold through a variety of multi-source agreements (MSAs). These include both fixed-wavelength and tunable edge-emitting lasers, VCSELs, PIN diodes and avalanche photodetectors. In the short term, the major beneficiaries should be major VCSEL suppliers such as Emcore, Avago Technologies and Finisar (through its Advanced Optical Components division), with CIR predicting a rapid increase in unit shipments of VCSELs over the next three years (see figure).

Good news for VCSEL manufacturers

Makers of long-wavelength VCSELs, including dilute nitride structures for operation at 1310 nm and beyond, should also start to find some traction for these cutting-edge products, whose longer wavelengths enable longer-reach communications. The US company Picolight, as well as the Danish outfit Alight Technologies (which acquired the dilute nitride VCSEL technology belonging to Infineon Technologies recently), could start to see a big pick-up in demand around the end of this year, when CIR expects volume commercial shipments of 1310 nm VCSELs. Unfortunately. Optical Communication Products (OCP) recently decided to cease its development of these devices, despite the added advantage of backing from the Japanese electronics giant Furukawa Electric, and major customers in Alcatel and Cisco.

Unlike most of its peers in the fiber-optic component and module businesses, OCP has already got its finances on a relatively even keel, and posted both operating and net profits in its most recent financial quarter.

The surge in the 10G business expected by CIR may come too late to save all of the remaining component vendors, as it seems inevitable that at least some of those with dwindling cash resources will go out of business without an injection of new funding. For those that do survive, there could be rich pickings. Of all the various MSA module types, CIR expects XFP (10G small-form-factor pluggable) to yield the biggest opportunity.

While the 10G business is rapidly becoming commoditized, with margins shrinking fast, the same can certainly not be said for the next level in high-speed optical communications - 40G. While there have been recent signs of life in the 40G sector ("Finally optical component makers dare to dream again" November 2005 p15), CIR is not expecting it to become anything more than a niche business, albeit one that will offer very high profit margins for a handful of vendors. "The [40G] business is too small, and will involve too much up-front capital to make it a solution to the module industry s wobbliness," reflected CIR.

CIR s report The Market for 10G and 40G Modules and Components: 2006-2013 is available at www.cir-inc.com
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