The global network IP is showing a tremendous traffic growth
For the past 50 years, mobile technology innovations have been rolled out each decade. Mobile bandwidth requirements have evolved from voice calls and texting to ultra-high-definition (UHD) video and a variety of augmented reality/virtual reality (AR/VR) applications. Despite the severe implications of the COVID-19 outbreak for the telecom infrastructure supply chain, consumer and business users worldwide continue to create new demand for networking and cloud services. Social networking, business meetings, video streaming in UHD, e-commerce, and gaming will drive continued application growth.
The average number of devices connected to the internet per household and per capita is increasing. With the advent of new digital devices with increased capabilities and intelligence, Yole Développement (Yole)’s analysts observe higher adoption rates each year. Expanding machine-to-machine (M2M) applications, such as smart meters, video surveillance, healthcare monitoring, connected drives, and automated logistics, contribute in a major way to device and connection growth and push the expansion of data center infrastructure. This major group of M2M connections will represent half of the connected devices and connections globally by 2023. Following M2M, smartphones will grow the second fastest, with a 7% CAGR2018-2023 (Figure 1).
Fiber-optic communication – application trends
Fiber optic networks consist of a set of optical network devices connected by optical fiber links, able to provide transport and related functionalities of optical channels carrying signals to the final client. Different optical network devices have been developed to target different applications, meaning different levels of network infrastructures in metro networks as well as in the data centers.
The standard classification of optical modules is Datacom and Telecom, and further classification is made by technology based on the varying transmission distances. Data communication (Datacom) is linked with cloud services in data centers (DCs) and often excludes voice services. The typical transmission distance is up to 100 km. Telecommunication (Telecom) is any communication over a specific distance, typically over 100 km. Telecom includes voice services, wireless networks, and data communication. Traditionally, long-haul technology migrates over time into the metro sector as costs decrease. Today, the metro networks are the most attractive applications in terms of market volume due to the interconnection trend in data centers (DCI). Advances in fiber-optic communication technologies enable higher speeds, and today 400G is ramping up, and 800G is starting to be deployed. The 400G/800G Ethernet is taking shape in the cloud data centers, and 400G/800G ZR will play a significant role in DCI. Yole’s analysts also see massive deployment of 100G optics into the lower architectural levels of cloud data centers or enterprise network architectures. One of the latest trends is the move from cloud to edge data centers to be closer to the end-user, thus enabling new applications due to low latency.
New ways of integrating multiple technologies are key
The exponential increase of digital communication network capacity and the growing number of optical ports impact optical module technology hugely. The goal is to reduce the size of form factors in the future, thus decreasing their power consumption and increasing their density. Service providers only want to decrease the price per bit with the improvements. The data rate trend is different for different transmission distances. The trend for inter-rack connections, where AOCs are mainly used, is moving from 40G to 100G and 400G. For short-reach and long-reach intra-data center connections (>100 meters), increasing numbers of 200G and 400G pluggable transceivers are now being seen (Figure 2a). In the case of long-haul connections (Figure 2b), this is the first time coherent DWDM transponders can be directly plugged into data center switches for inter-data center links. There is a lot of excitement about the deployment of the revolutionary 400G ZR.
With regard to laser technology, two types of laser devices are used in optical modules – vertical-cavity surface-emitting lasers (VCSEL) and edge-emitting lasers (EEL). The VCSELs are based on a Gallium Arsenide (GaAs) material platform and are primarily seen in the active optical cables (AOCs) used for short-reach applications (>30m). The main advantages of AOCs are their lowest-priced optical interconnection and “plug & play” solution. For today’s intra-rack interconnects (<30m), Direct Attach Copper cables (DAC) still dominate, but there is a move to 50G PAM4-based AOCs. DAC’s value proposition is low cost, simple construction with no active electronics or optics, and zero power consumption. Up to 80% of the links in a data center are at reaches less than 100 meters traveling up and down rows of racks and short-reach transceivers. Therefore, this segment is very cost-sensitive and difficult to penetrate by advanced optical transceiver technology.
The EELs used in optical transceivers for intermediate-reach (500m to 2km) and long-reach (10km and beyond) applications are based on traditional Indium Phosphide (InP) and Silicon Photonics material platforms. While discussing high-speed optical transceivers, Yole’s analysts often talk about the two different types of EEL technology: directly modulated laser diode (DML) and electro-absorption modulated laser (EML). A DML can also be called a distributed feedback (DFB) laser due to its design. It features a single chip with a simple electrical circuit and is ideal for circuit designs that require a small footprint and low power consumption. The EML design integrates a laser diode with an electro-absorption modulator (EAM) in a single chip. The laser diode generates a continuous wave, and its lower chromatic dispersion enables higher data rate transmission over longer distances. DML’s technical limitations restrict its use to 10km and under, and its lower cost makes its use economically feasible for 1G and 40G data rates. EML lasers handle long spans and are highly suitable for 400G and 100G single lambda applications. Silicon photonics is still perceived as an emerging technology that has been well established in intermediate-reach applications. It might play a key role in DCI applications (>80km). The industry is developing different approaches for heterogeneous integration of InP lasers directly onto silicon chips. The advantages are scalable integration and elimination of the cost and complexity of the optical package. Reduced efficiency and lower optical power at high temperatures are the typical challenges for these lasers.
Co-Packaged Optics (CPO) is a new approach that brings the optics and the switch ASIC close together and aims to overcome the challenges mentioned above. Furthermore, CPO technology is considered to be a new deployment model of the whole ecosystem and an alternative to pluggable optics.
Can China catch up with the US on optical transceivers?
Deteriorating US-China relations has impacted the global optical transceiver industry. The US government has entered a trade war with the ban on ZTE and Huawei to limit the impact of China on the global economy. For many laser and photonics companies, China represents one of the largest markets and growth opportunities. As tension between the US and China escalates, China is striving to maintain its economic growth by ensuring a secure and controllable technology supply chain as well as building domestic technology sectors to be self-sufficient in those segments impacted by US tariffs. American companies cannot sell in China because they would become targets of consumer boycotts. The loss of revenue for American photonic companies will far exceed that of their Chinese counterparts. China also plays an irreplaceable role in the global industrial chain thanks to its value in manufacturing. It would be exceedingly difficult to break down the manufacturing chain into high-end devices that might present national security concerns and lower-end devices for which intellectual property sharing and joint ventures would remain permitted. Yet if the US imposes new tariffs, this decoupling may happen, adversely affecting the whole optical communication supply chain.
Revenue generated by optical transceivers was around US$9.6 billion in 2020 and is expected to more than double to around US$21 billion by 2026 at a compound annual growth rate for 2020-2026 of 14% (Figure 3). Significant revenue comes from Ethernet transceivers used in data centers. This will drive the market for the next 5 years to grow to around US$12.1 billion. This growth is driven by demand for capacity in the datacom market by the growing needs of very large cloud service providers (DC hyperscalers), and demand for flexible optical tunable transmission modules to effectively respond to unpredictable bandwidth demands and manage expenses in Telecom. The COVID-19 outbreak is affecting optics manufacturing globally, though particularly from fabs in China and other Asian countries, Europe, and North America. Thus, much supply was postponed in 2020. However, demand for optical modules by data center operators is very strong in China, with local government support for the deployment of 5G and cloud data centers.
Martin Vallo, Ph.D., serves as a Technology & Market Analyst specializing in solid-state lighting technology within the Photonics, Sensing & Display division at Yole Développement (Yole). Martin is currently involved in the development of reports as well as custom consulting projects at Yole.
Martin graduated from the Academy of Sciences, Institute of Electrical Engineering (Slovakia) with an engineering degree in III-nitride semiconductors.