Introduction
Since the introduction of 400ZR optics in 2021, all eyes have been on IP-over-DWDM and its potential impact on optical networking. Cignal AI previously looked at the impact of IP-over-DWDM by forecasting the degree to which it will reduce spending on optical transport systems as router-hosted optics substitute for traditional transponder sales. We predicted that this shift would temper growth in Metro optical transport, and over the last few years we’ve seen just that. In 2024 Long Haul spending surpassed Metro for the first time, accounting for over half of all optical transport sales.
This report takes a deeper and more nuanced look at the rates of adoption fueling this seismic shift in hardware and component revenue. The market for router-hosted pluggables is already sizeable, but it will continue to further grow as operational issues are solved and new generations of optics evolve. The uptake of IP-over-DWDM will vary significantly between market segments, as will the preferences for the type of optics- and this has a direct impact on the market forecasts for optical hardware.
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The ZR Gap
Cignal AI refers to the delta between a counterfactual Metro forecast (in the absence of IP-over-DWDM) and the actual level of Metro spending as “The ZR Gap”, and as of 2024 it stands at nearly $2.5B, as illustrated in the figure below. This gap represents the amount of optical transport hardware cannibalized by IP-over-DWDM. But the ZR Gap is partially filled by the pluggable optics which created it. Router-hosted optics revenue falls outside the traditional definition of optical transport hardware – but is undeniably still “optical” and a critical part of transport. This report, in addition to examining the revenue forecast of IP-over-DWDM across pluggable types and customer markets, combines this revenue with that of traditional transport hardware for a more complete picture of the market. The revenue from IP-over-DWDM pluggables is significant, but can it fill the ZR Gap?
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