LightCounting’s latest High Speed Ethernet Optics Report says that sales of Ethernet optical transceivers set a new record in 2020, reaching US$3.7 billion – up 33% from a slow 2019, when the segment declined by 18%. Suppliers of optics recovered promptly in Q2 2020 from the disruptions caused by COVID-19, and demand for all products ranging from 1GbE to 400GbE exceeded expectations for 2020 in total.
Sales 400G and 2x400G (800G) modules will sustain the growth of the global market for Ethernet transceivers in 2021-2026 at a CAGR of just above 10%. Sales of 100GbE modules are projected to remain steady at just above US$2 billion per year. The total market for Ethernet connectivity is projected to reach US$6.8 billion in 2026, not including sales of optics co-packaged with switching ASICs, called Co-Packaged Optics (CPO).
LightCounting says that CPO is an exciting technology, but it is important to set realistic expectations for its adoption by the market. Apart from numerous manufacturing challenges and meeting the targets set for lower power consumption, end users have to accept CPO as a viable approach for continuing cost reduction. Facebook and Microsoft advocate for creating a new eco-system around CPO and industry standards for manufacturing optical engines, but initial products will be based on proprietary designs. This will be a significant barrier for the largest customers that are spending US$0.5 billion or more on optics annually. It adds that in 2010, some analysts predicted that Silicon Photonics (SiP) would replace all other optical chip technologies in the next 3 years. A decade later, SiP-based products account for less than 20% of optical transceiver sales, but adoption of this technology is finally accelerating.
The company says that it is certain that customers will start evaluating CPO as soon as it is available, and very likely that Cloud companies and very large enterprises will make limited deployments of CPO in 2025-2026, but massive adoption of CPO may have to wait until well after 2026. Pluggable optical transceivers are set to remain the dominant solution for Ethernet connectivity for the next 5 years and probably for a lot longer than that.
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