The VCSEL-based transceiver market took hold in 1999 with consumption of $262 million, more than three times that of 1998. Fueled by the recent success of Gigabit Ethernet and Fibre Channel, this explosive growth will continue, supported by a number of all-new applications, reaching $3.4 billion in 2004 and continuing on to $14.1 billion in 2009, as noted in . The drivers for this dynamic growth are:

1. Rapid advancement of datacom standards: Explosive growth of Gigabit Ethernet, followed soon by;10 Gigabit Ethernet. Continued aggressive growth of Fibre Channel, migrating to 2 Gb/s Fibre Channel, and on to 10 Gb/s.
2. Penetration of telecom: Low cost solutions for Very Short Reach SONET at 10 Gb/s.
3. New opportunities: Serial and array links within Infiniband switch fabrics. Deployment of intra-system array-VCSEL interconnects.

The dynamic ramp of the VCSEL transceiver market has stretched the development and production capabilities of the traditional transceiver vendors and has provided opportunities for new vendors in the market. But margins are already thin on commodity versions and price erosion will continue. New markets, faster speeds, and wider links mean new opportunities for innovation, market differentiation and margin recovery. Manufacturers of network equipment are ready to go, and demand for VCSEL transceivers will exceed supply for 1224 months. The winning transceiver vendors will be those that appreciate the concept of time-to-volume rather than time-to-market. Emergence of VCSELs In the late 1980 s, U.S. military weapon system planners foresaw a far future need for many-orders-of-magnitude greater data transport than was feasible at that time; to be accomplished in very little physical space and being rugged enough for operation in severe environments. It appeared that the capabilities of diode edge-emitting lasers could not be pushed up enough to meet the need. Transporting the data via a large number of parallel high data-rate channels appeared to be a candidate solution, but fabrication, cost and other factors made edge-emitters an unattractive option. VCSELs looked more attractive, especially in array format, provided that they could be brought to commercial production. Accordingly, over the past ten years, the U.S. government (mainly the Defense Advanced Research Projects Agency, DARPA) has spent approximately $200 million on contracts to industry, university and other laboratories to advance VCSELs to commercial availability. Within the contacts, much of this funding was matched by the industrial laboratories. There also were numerous large and small independently funded VCSEL projects, in North America, Europe and Japan, to move this technology along. Altogether, worldwide, roughly $500 million has been spent in this field over the past ten years. VCSEL lasers can be modulated at very high speed and perform very efficient power conversion. This means low power consumption for transmit modules. The well-confined circular output beam of a VCSEL allows efficient coupling into an optical fiber. This leads to relatively coarse alignment requirements within the optical subassembly. Surface emission allows for low-cost "LED-style" packaging schemes. Also, because VCSEL geometry and manufacturing tolerances are based simply on lithography, they are ideally suited to fabrication in arrays. The required data rates of short-reach data transport have been multiplying dramatically, especially since 1996, leading to a strong commercial demand pull for low cost, relatively low power, medium/high data rate lasers. The VCSEL has emerged as the strongest candidate for this task. Non-communication applications for VCSELs (such as laser printers, laser sensing and storage) have now emerged as well. VCSEL vendors are rapidly expanding capacityHoneywell alone is shipping hundreds of thousands of VCSELs per week. There is strong investor interest in supporting this expansion, and the inundation of funds is supporting renewed efforts at expanding VCSEL technology. Current VCSEL diode development (for communication applications) includes new materials, processes and structures, new device designs, and of course, faster speeds. These efforts are depicted in . High-speed Datacom The growth of Gigabit Ethernet has been explosive and will be followed soon by 10 Gigabit Ethernet. We will see continued aggressive growth of Fibre Channel, migrating to 2 Gb/s Fibre Channel, and on to 10 Gb/s. After an intense standards battle, a serial VCSEL transceiver was chosen as one of four acceptable solutions for 10 Gigabit Ethernet. In the Fibre Channel committee, three of five accepted solutions use 850 nm VCSEL transceivers. Included are Coarse WDM (CWDM) VCSEL transceivers, a new approach that avoids 10 Gb/s line rates and more expensive electronics. In each of these two markets, multimode short reach solutions dominate and by 2004, these two applications alone will grow almost eight-fold over 1999. VCSELs in Telecom The extremely rapid growth of networking and Internet access has been fueling extraordinary growth of aggregation switches, very high speed routers, high capacity DWDM transmission equipment, larger digital cross connects, and now optical cross-connects for optical networking. These developments are serving the expansion of the Internet backbone with most equipment being installed in telephone central offices and Points of Presence (POPs), forming the core network. As routers grow to terabit scale, and cross-connects and transport systems manage OC-192 traffic, these systems need to be interconnected at 10 Gb/s to minimize the large number of interconnections. However, with all this equipment within one facility, link distances are short, the majority less than 100 meters. SONET compliant optical links are optimized for much longer reaches and cost as much as $15,000. Low cost solutions for Very Short Reach (VSR) SONET at 10 Gb/s are being defined with a target of $500 per interface. VCSEL-based parallel optical interconnects are considered the leading solution. New "converter ASICs" interface existing array VCSEL transmitters and receivers to SONET hardware. Deployment is about to begin and take-up will be rapid. By dividing bandwidth across multiple fibers, a Very Short Reach OC-768 array VCSEL link will by 2003 provide low-cost 40 Gb/s transport up to a few hundred meters. Optical Interconnects High performance systems of all types are evolving rapidly. Internal backplane speeds are escalating, pushing the fundamental limits of copper. Highly scalable, carrier-class systems are beginning to consume multiple equipment racks, placing heavy emphasis on redundant interconnections between complex switch fabrics and I/O line cards. In contrast to standards-based interconnects such as Gigabit Ethernet and SONET, optical array interconnects are now mostly a collection of proprietary intra-system interconnects based on array VCSEL links. The term "optical backplane" can mean the optical analog to a traditional electrical backplane, or it can mean the use of array optical interconnects to create a new architecture, not previously possible. They are seeing rapid production deployment in terabit routers, digital cross connects, and optical cross connects. Emerging Applications The now-pervasive PCI bus has been in use for almost a decade. It is found in almost every type and size of system and is still evolving. But the increasing use of ever-faster CPUs, larger databases, and faster networks is now outstripping the capability of the PCI bus. PCI is a shared architecture where all devices compete for bandwidth. In the networking domain, shared hubs have evolved into full bandwidth switches using a point-to-point architecture. In the same way, Infiniband is intended to replace the PCI bus with a high-bandwidth switched network topology. It is a network approach to I/O, effectively creating "a switch inside the server" using a packet protocol. Why Use VCSEL-Based Transceivers? Performance VCSEL lasers can be modulated at very high speed, especially as compared to LEDs that are used in low data rate local area networks (LANs). Today, the majority of VCSEL transceiver applications are at 1 Gb/s and are moving to 2.5 Gb/s. Prototype VCSEL modules are emerging for 10 Gb/s data rates. Because of the high reflectivity of the mirror stacks, and the excellent confinement of the current path, VCSELs perform very efficient power conversion (the record is 57% but typical is 625%). This means low power consumption for transmit modules. Drive currents of oxide confined VCSELs are around 250 mA. As speeds and densities increase, low power consumption is critical in today s high performance communication equipment. See . Reliability VCSELs have been shown to have lifetimes from 110 million hours (100 years). This is far higher than the lifetimes of CD lasers, which had been used prior to 1999. It is important to note that this reliability can be achieved without hermetic packaging. Ease of Transceiver Manufacturing The well-confined circular output beam of a VCSEL allows an efficient coup-ling of power into an optical fiber. This leads to relatively coarse alignment requirements within the optical subassembly. Surface emission allows for low-cost "LED-style" packaging schemes. In some cases, such packaging can include passive alignment of the VCSEL within the assembly. Non-hermetic packaging allows for VCSELs bonded to lead frames or flex circuits and imaged through molded plastic optics, eliminating the requirement of sealed metal TO cans. Because VCSEL geometry and manufacturing tolerances are based simply on lithography, they are ideally suited to fabricate in arrays. Today, 1D arrays of 12 VCSELs are common with reasonable yields. Eventually, 2D arrays will evolve into high-yield production. Reduction of input power also leads to simplified packaging and thermal management. It also reduces the EMI (electromagnetic interference) shielding challenges of transceiver packaging. Cost Standard microelectronics style processing is used to produce VCSEL diodes. Because they emit from the surface, each VCSEL on a wafer can be probe-tested before dicing and packaging, so yield issues can be caught before subassemblies are produced. In 1D arrays, VCSELs can be much higher yield than edge-emitting laser arrays. As noted above, VCSELs offer numerous advantages for transceiver packaging, all of which lead to lower cost transceiver modules.