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Optical transceivers: a $17.7 billion market by 2025


Market driver is the high optical module cost erosion coupled with high volume adoption of high data rates modules by big cloud service operators and national telecom operators, says Yole

Revenue generated by optical transceivers reached around $7.7 billion in 2019 and is expected to more than double to around $17.7 billion by 2025 at a CAGR for 2019-2025 of 15 percent, according to Yole Développement's Optical Transceivers for Datacom & Telecom 2020 report.

This growth will be driven by high volume adoption of expensive high data rates including 400G and 800G, modules by big cloud service operators. Therefore, such players invest more and more in new data centres and top of that telecom operators have also increased their investments into the 5G networks that use wireless optical transceivers.

High demand from data centre and telecom operators have been confirmed as follows:

• The datacom market growth, about 20 percent CAGR between 2019 and 2025, will be driven by the adoption of expensive higher data rate optical modules which migrate from core/spine networks down to inter-rack connections.

• The revenue growth of telecom optical modules will be driven by coherent technologies for DCI optical transport solutions and 5G optical transceivers deployment in Asia. Yole’s analysts announce 5 percent CAGR during this period.

• The sharp difference in growth revenues is caused by lower sales expectation in 2020 due to the COVID-19 pandemic. In addition, the total revenue is expected to moderately increase in 2020 with the effect of the pandemic. Indeed, COVID-19 is affecting telecommunications globally and sales of optical transceiver modules. However, demand for optical modules by data centre operators is very strong in China, pushed by the local government. Its strategy is mainly focused on the 5G deployment and the development of cloud data centres.

According to Pars Mukish, business unit manager, solid-state lighting (SSL) & display at Yole: “The state of the art of fibre-optic communication technologies has advanced dramatically over the past 25 years. The highest capacity of commercial fibre-optic links available in the 1990s was only 2.5-10 Gb/s while today they can carry up to 800 Gb/s. The last decade of developments have enabled higher efficiency digital communication systems and solved problems with degraded signals”.

Network traffic growth has been increasing at an enormous pace over the decades and across all the network architectures from the long-haul, mobile access to intra-DC networks. This growth has been driven by streaming UHD videos, which need ever higher data throughput, and now newly emerging digital applications and services requiring fast access to the digital networks.

Optical transceivers are widely used in server network cards, switches, routers and wireless base station equipment in a variety of network architectures and applications. Distances covered start from less than 50 metres for server and storage interconnections in data centres and enterprise networks to more than 800 km in telecom networks.

As analysed by Yole’s team in the new Optical Transceivers for Datacom & Telecom 2020 report, the evolution of multiple technologies has enabled transmission speed of 400G and beyond in long haul and metro networks. Today’s trend of migration to 400G speeds stem from cloud operators’ demand to interconnect data centres. Furthermore, exponential increase of capacity of digital communication networks and growing numbers of optical ports impact optical module technology hugely. The new form factors are increasingly universal and designed to reduce their size and thus power consumption. Inside modules the optics and integrated circuits are getting closer together.

Therefore, silicon photonics might represent a key enabling technology for further development of optical interconnect solutions needed to address growing traffic. This technology will play an important role in 500m–80km distance applications. Industry is working on heterogeneous integration of InP lasers directly onto silicon chips. The advantage is scalable integration and elimination of the cost and complexity of the optical package. Reduced efficiency and lower optical power at high temperature are the typical challenges for these lasers.

For Eric Mounier, analyst at Yole: “Besides increasing speed by integrating amplifiers, the higher data throughput is also achieved by integrating state-of-the-art digital signal processing chips providing different multi-level modulation techniques such as PAM4 or QAM. Another technique to increase data rates is parallelisation or multiplexing that enables increasing capacity using parallel fibres or different wavelengths onto a single fibre”.

Progress in integration of optical component technologies has led to dramatic reductions in complexity and cost of optical transceivers. The massive growth in bandwidth has yielded a 10 to 100-fold decrease in cost per transmitted bit.

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