Market watcher LightCounting, has updated its High Speed Ethernet Optics report saying the expected increase in sales of Ethernet transceivers in 2020 might not happen until 2021, due in part to the general economic downturn caused by the Corvid-19 pandemic.
It says that just before the virus was discovered, demand for optical connectivity was very strong and sales of optical transceivers set a new record in Q4 2019. However, total sales of Ethernet optics in 2019 declined by 17%. Weaker than expected demand from several large customers and steep price declines, which started in late 2018, are the main reasons for this decline. LightCounting says the market momentum turned positive in the second quarter of 2019 and accelerated by the end of the year, but it was too late to prevent the first decline in sales of Ethernet transceivers since 2009 and the first ever double-digit decline in this market segment. Even during the telecom crash, it notes, sales of Ethernet transceivers (mostly for enterprise networks at the time) were a bright spot in the market.
There is however a glimmer of hope, according to LightCounting. It says that businesses are adapting to the new conditions as people work from home in most of the U.S. and many countries in Europe. Telecom networks and datacentres are critical infrastructure facilities, which will continue to operate while many other businesses are shutting down. Datacentre and network operators are reporting huge spikes in data traffic, while airlines, hotels and restaurants all have very few customers. People are spending more time on video calls, playing games, streaming movies and doing more shopping online.
Strong demand for 100GbE modules in the second half of 2019 resulted in shortages for some products, which is great for stabilising prices, and as Wuhan was shut down by the virus, the shortages spread over many other product categories since so much is now manufactured in that city. Factories in Wuhan are resuming operations now, but it will take time for the global supply chain of the optical communications industry to recover from having one of its central manufacturing hubs shut down for two months.
The Chinese government is prioritising networking infrastructure projects now, including 5G and Cloud datacentres. Demand for optics by Alibaba, Baidu, Bytedance, Tencent, and many other datacentre operators in China is very strong, as these companies are catching up on slower deployments of optics for most of 2019 and now this most recent disruption. The report says that this trend will continue as long as Chinese consumers are willing to pay for Cloud services, but a global economic recession will impact consumer confidence in China and the business of Chinese Cloud companies. This was the case in the second half of 2018, when the China/US trade war hit the confidence of Chinese consumers, which in turn cut revenues and spending of the local Cloud companies.
However, new ambitious datacentre projects may be put on hold until there is less uncertainly. Adding bandwidth to the legacy infrastructure is a safer option for the time being. LightCounting says this will negatively impact sales of next generation “200GbE and above” transceivers. The analyst firm reduced its 2020 forecast for sales of these products, but kept the longer-term outlook largely unchanged. It expects that sales of 2x200GbE and 4x100GbE modules to Google and Amazon will continue to grow this year. Facebook’s plans for deploying 200GbE in the end of 2020 may shift into 2021, but should not be delayed significantly. Alibaba and other Chinese Cloud companies had no plans for deploying 200GbE or 4x100GbE optics in 2020, but all of them are likely to do so in 2021. The report also notes that the lifecycles of legacy products, including 40GbE and 100GbE will be extended by a year or so, but it will be new versions of 100GbE transceivers, such as DR1 and FR1, which will keep sales of “100G and below” products steady in 2021-2025.
The report is based on confidential sales information and on detailed analysis of publicly available data released by leading component and equipment manufacturers along with considerable input from industry experts.
For more information, visit http://lightcounting.com