Tunables in fiber-optic 'mini-boom'

The resurgent market for optical components used in fiber-optic networks will almost triple in value by 2012, predicts a new report. Timed to coincide with the OFC/NFOEC conference in Anaheim, California, the report from CIR says that annual sales of these components will grow from $2.8 billion this year to $7.9 billion in 2012. Although that total includes various semiconductor and non-semiconductor components, devices based on III–V materials will be among the fastest-growing individual segments.

Lawrence Gasman, lead author of the report, predicts that tunable lasers will be a hot area over the next five years, enjoying a compound annual growth rate (CAGR) of 37%. By 2012, that will translate to a total market of nearly $1 billion. Over the same period, CIR predicts that the CAGR of other key components will be 24% for fixed-wavelength lasers, 28% for detectors and receivers, and 35% for external modulators. Gasman believes that the next five years will witness a "mini-boom" in fiber-optic components for a revitalized industry. He noted that it is not just emerging short-reach applications like residential fiber access that is driving this demand.

"The long-haul sector has some growth in it, for the first time in years. [Demand] will be evenly spread to a degree, with no really horrible areas," Gasman told Compound Semiconductor. "However, two hot spots are tunable lasers and filters/gratings, both driven by wavelength-division multiplexing (WDM). We expect WDM to increasingly serve the core of the network, and tunables are now the standard way of deploying dense WDM."

Companies such as Santur, Intel and JDSU, which have a strong foothold in tunable lasers, should be able to capitalize on this increased demand, with chip manufacturers like Bookham and CyOptics also benefiting. Syntune, a fabless company whose tunable lasers are manufactured at the CyOptics InP foundry, said at OFC/NFOEC that it had simplified its fabrication method and produced the first monolithic tunable laser for 10 Gbit/s transmission (see Tunable highlights at OFC-NFOEC).

With networking technologies such as 10 Gigabit Ethernet and FibreChannel using photonics instead of copper-wire transmission, optical components are also being brought closer to the end users. Gasman believes that this accelerating deployment of optical technologies in corporate networks and data centers will require a significant ramp in the supply of lasers. Estimating the current value of the market for lasers in 10 Gigabit Ethernet at $300 million, he thinks that extra demand will swell sales to $1.2 billion by 2012.

Another key market driver will be residential access, where passive optical networks (PONs) are becoming the technology of choice. CIR expects many of the major telecom carriers to adopt ambitious PON deployment strategies over the next few years. For semiconductor manufacturers, the knock-on effect will again be extra demand for PON lasers and photodetectors. Taken together, the market for tunables, fixed-wavelength lasers and photodetectors used in optical networks should be worth around $3 billion in 2012, compared with about $1 billion today.

Forecasts of rapid growth in demand for optical components in networking applications were a feature of the technology bubble of the late 1990s. Gasman insists there will be no subsequent bust this time. He believes that, following rapid growth over the next five years, demand will settle down to a healthy annual growth rate of 15%. "There are a lot of differences between now and then," said Gasman. "The boom in the past was partly the madness of crowds .

"More importantly, the whole boom was a house of cards constructed as the result of market distortions caused by bad policy decisions. In the US, the Clinton administration s Federal Communications Commission insisted that competition had to mean lots of small carriers – which made no real sense in a capital-intensive industry where economies of scale were rife. Equipment vendors came into business to serve these carriers, and components firms came into being to serve them. Then, when the carriers began to collapse, the whole ship went down."

As Gasman s colleague Rob Nolan points out, the wider financial picture is now very different. "There is no stock market run up here," said Nolan. "Huge run ups in stock prices for networking and components companies made investing in the next hot start-up attractive for venture capitalists. The problem was that these companies were selling equipment to service providers who were taking pre-IPO stock as part of the deal – which increased their value because they could claim that they had a contract."

If the CIR analysis is correct, future prospects are good for many of the remaining optoelectronic chip makers. Even so, Gasman adds that there remains a need for further consolidation, particularly in some relatively overpopulated sectors, such as that for reconfigurable optical add–drop multiplexers.