LightCounting, in its latest Quarterly Market Update Report, finds that demand for 100 Gigabit Ethernet optical connectivity from operators of mega-data centres is continuing to exceed supply, and estimates that sales of QSFP28 SR4, PSM4, CWDM4 and LR4 transceivers rose 40% in the first quarter to over $250 million.
The research firm reports that overall sales of Ethernet, SONET/SDH, CWDM/DWDM, Fibre Channel, FTTx, wireless fronthaul transceivers and active optical cables (AOCs) and embedded optical modules (EOMs) declined 5% sequentially in the first quarter, but increased 15% year on year. It forecasts that weak demand for optics in China will result in a further 3-5% decline in the sales of these products in the second quarter, with sales of tunable lasers, modulators and coherent receivers set to decline by 20% or more.
More specifically, LightCounting reports that suppliers of optical components and modules experienced a sharp fall in orders from Huawei and ZTE in March 2017, after ZTE reached a settlement with the U.S. government relating to an investigation into violations of export sanctions to Iran. It notes that the investigation, launched in 2016, could have restricted ZTE’s access to optics from U.S.-based suppliers, so that the vendor may have accumulated excess inventory of such products.
While Huawei was not formally charged with such violations, the research firm believes that it may also have started to build up reserves of key components from U.S. suppliers to avoid potential disruptions. When the settlement was reached, both companies may have started to use components from their reserves and reduced purchases of new products.
LightCounting states that if this view is correct, demand for optics in China would be expected to return shortly as excess inventory is depleted. It adds that there were signs of rising demand for optical components in June, which is expected to continue in July and August.
LightCounting notes that ZTE and Huawei both reported higher sales of optical networking equipment in the first quarter and issued strong guidance for the current quarter. It also cites Chinese service providers as making ongoing investments in optical networking even as overall capex is reduced in 2017. Additionally, there are multiple new projects scheduled for the second half of the year in China.
Finally, LightCounting reports that shipments of 200 Gbit/s DWDM ports reached a new record in the first quarter, while DWDM solutions enabling 400 Gbit/s transmission on a single wavelength are an area of focus. In addition, the development of 200/400 Gigabit Ethernet transceivers is also underway.
