OFC 2018 – Consolidation

Each year, there is at least one announcement at OFC which surprises the industry. In 2016, the announcement was the introduction of Inphi’s ColorZ, while in 2017 it was news of Ciena choosing to license the Wavelogic DSP to module vendors. And yet, OFC2018 delivered a surprise that exceeded both: Lumentum will acquire Oclaro.

Industry consolidation is a subject of speculation for the past decade at OFC. These discussions became circular and tiresome after years of no action.

That changed during OFC 2018 as Lumentum and Oclaro, the market’s second and third largest optical component companies, announced their merger. Unlike the mergers in the 2000s, which were examples of the strong consuming the weak, this agreement was more an alliance of choice made by management bent on realizing all of those benefits so many had preached of over the years. The move sparked excitement and new conversations at OFC, and highlights and analysis follow:

Requires Optical Active Insight subscription.

Nokia PSE-3 Coherent Chipset

On March 6, 2018, Nokia announced its fourth generation coherent optical technology, the PSE-3, which continues the company’s strategy of developing coherent DSP processors in-house. Nokia is betting that these chips will differentiate the performance, price, and availability of its optical hardware products.

This Cignal AI report explores what makes the new PSE-3s different from off-the-shelf solutions and examines the question of whether or not vertical integration still makes sense in this market.
Requires Optical Active Insight subscription.

Investor Call – Piper Jaffray Optical Event

Andrew Schmitt was the featured speaker on an investor call hosted by Troy Jensen of Piper Jaffray on February 21st. Forty-four participants listened in and posed their questions as Andrew gave his perspective on the latest events in the optical component and equipment market.

Topics during the call included:

  • Anticipated impact of China’s MIIT plan on existing component suppliers
  • The divergence in Chinese equipment revenue and supply chain
  • The market outlook for ROADMs in 2018
  • The 400G+ Coherent DSP and component outlook
  • The evolution of the CFP2-ACO and DCO market
  • Analysis of equipment companies outsourcing DSPs
  • Update on Inphi’s ColorZ, modulator driver, and PAM-4 business
  • Infinera’s market opportunity with the CX2 and ICE4 based products
  • North American CapEx in 2018 and optical equipment forecast
  • Ciena’s 400G market monopoly in 2018

Active Insight clients can access a summary of the key takeaways, a written transcript, an audio replay, and participate in Q&A.

Requires Optical Active Insight subscription.

China’s 5 Year Optical Component Plan

China’s Ministry of Industry and Information Technology (MIIT) released a five-year plan in December 2017 outlining a roadmap for commercial and technological progress in a broad set of optical technologies. The 63-page document is in Chinese. The following Cignal AI report is based on a professionally translated version of the document and summarizes the section of the plan about the Chinese optical component industry.

The goals and objectives outlined in the plan are exceptionally ambitious and should concern incumbent component vendors. This document outlines strategic rather than rational economic objectives to catalyze market progress in Chinese component companies. Our interpretation is that this will increase the number of non-rational economic actors participating in the component market.

If executed, this plan will greatly increase the level of competition in an already fractured industry.  It will also reduce or in some cases eliminate access for western component vendors to the largest market for optical communications components in the world – China.

Electronic copies of the source MIIT document as well as the translated version of the section on optical components are available to clients for download.

Chinese PDF English PDF


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Acacia 3Q17 Conference Call

Acacia mentioned data from our Optical Applications report during its third-quarter earnings conference call with investors on November 3, 2017. The company highlighted our unique work to measure and forecast demand for 100G+ coherent deployments at the edge of the network.

Raj Shanmugaraj – CEO

As cloud operators push data closer to the end user, the demand for coherent optical interconnects for distances below 100 kilometers is growing. Industry analyst firm Cignal AI projects that the demand for these edge coherent ports will grow at the rate of 53% in the next 5 years. We believe our high-capacity coherent solutions, like our AC1200, are particularly important in these edge coherent applications where low power consumption and space optimization are important requirements.

He went on to quote our briefing which focused on our coherent technology observations made at ECOC2017 in Gothenburg, Sweden. (full briefing here: ECOC2017 – Coherent 100G+)

Our CFP2-DCO product completed the qualification in the third quarter and is getting favorable reviews in the industry. One industry analyst commented in his ECOC coverage brief that our CFP2-DCO is, quote, “unrivaled in performance and power consumption.” As we mentioned during our second quarter earnings call, we have over 15 customers for our CFP2-DCO. Our customers and their end customers are in various stages of qualification or deployment with this product and we anticipate further sales growth as market conditions improve. In China, carriers have adopted DCOs like our CFP module and we anticipate that our CFP2-DCO module will build on the success of our CFPs in that market.

Full transcript at Seeking Alpha.

Analysis: 1H17 Cloud and Colo Spending Slowdown

Cignal AI’s recent Optical Customer Markets Report discovered an unexpected weakness in 2017 optical transport equipment spending from cloud & colo operators (see Cignal AI Reports Unexpected Drop in Cloud and Colo Spending). This surprising trend was then further supported by public comments later made by Juniper and Applied Optoelectronics, prompting us to examine the situation in greater detail.

This detailed brief includes:

  • Cloud & colo spending as defined by Cignal AI
  • Analysis of quarterly spending trends by cloud & colo operators
  • Recent shifts in market share among equipment vendors to this market
  • Quantitative analysis of underlying causes of this slowing, including price compression and displacement by IPoDWDM via Inphi, Acacia, and Oclaro components

Requires Optical Customer Markets subscription.

ECOC 2017 – China Observations

This is Cignal AI’s second ECOC 2018 brief, focused on news out of China.

Topics include:

  • China Inventory and 2018 Demand
  • Ciena Wavelogic AI Licensing Update
  • China ROADM Deployment Outlook
  • Huawei 100G+ Coherent Technology Roadmap

Our first brief, issued on October 3rd, focused on coherent 100G+ technology updates.

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ECOC2017 – Coherent 100G+

ECOC is one of the most significant conferences in optical networking worldwide. This year’s conference was held in Gothenburg, Sweden, and the event was well attended by the engineering community, as the conference trends heavy on technology and light on marketing. We at Cignal AI like ECOC because it gives us another opportunity to converse with the folks directly responsible for charting the technical roadmap of upcoming optical systems.

In this first of several ECOC briefs, we share some of our findings on the changing trends in coherent optics. Subsequent briefs will explore China and client optics.

  • CFP2-ACO Outlook – The ACO market is going away; what this means
  • Silicon Photonics – Searching for the killer app
  • Inphi ColorZ – Moving downmarket to grow volume
  • 400G ZR – Examining investment risk and rewards
  • Acacia CFP2-DCO – Market Feedback

Requires Optical Active Insight subscription.

1H17 Optical Applications Report

Our 1H17 edition of the Optical Hardware Applications report has been released.

The report contains details on the following areas:

  • Compact Modular hardware market share and forecasts
  • 100G+ Coherent port shipments vendor market share
  • 100G, 200G, and 400G+ Coherent and Direct Detect port shipments and forecast
  • Advanced Packet-OTN Switching market share and forecasts

This report includes significant updates and enhancements:

  • Initiated a coherent 400G port shipment forecast, estimating demand for 400G wavelengths in CY17 and beyond, including the upcoming 400G ZR pluggable format. The forecast also quantifies the emergence of coherent 100G in volume at the edge of the optical network. A more detailed written analysis sharing the assumptions behind this forecast will be published in the coming weeks. In the meantime, we welcome feedback on the quantitative forecast.
  • Renamed DCI Hardware category to “Compact Modular”. DCI is an application, not a hardware category, and these compact, modular chassis are being used in several applications, including DCI. As Incumbent, Cable MSO, and Wholesale operators evaluate and deploy these systems it is important that this category name better reflect the defining characteristics of these systems. A listing of the specific systems in this category can be found here.
  • Added 1H17 market share results for Compact Modular and Advanced Packet-OTN Switching equipment hardware. Also updated coherent port shipment market share to include vendor results for 1H17.
  • Compact Modular hardware forecast increased in 2017 and 2018 as result of discussions with vendors. This is a bottoms-up change with the risk that multiple vendors are double-counting the same opportunities.
  • Historical 100G+ Port Shipments adjusted to align with actual customer shipment data.

Current subscribers can download Excel and PowerPoint files.

Report Details Excel PowerPoint

2H16 Optical Applications Report

Our 2H16 edition of the Optical Hardware Applications report has been released.

The report contains details on the following markets:

  • Datacenter Interconnect Hardware market share and forecasts
  • 100G+ Coherent port shipments and market share
  • 100G+ Metro and edge port shipments and forecast
  • 100G+ Port shipments and forecast by speed & technology
  • Advanced Switching Hardware market share and forecasts

Notable updates include:

  • Full year market share results for 2016 including all hardware categories as well as updated coherent port shipment data
  • DCI hardware forecast increased as a result of accelerating adoption outside of Cloud & Colo customers
  • Forecasts for 100G and 200G+ metro and edge coherent ports adjusted
  • All forecasts extended through 2021

Subscribers can download Excel and PowerPoint files, and registered users can view updated report information.

Report Details Excel PowerPoint

OFC 2017 – Open vs. Closed Optical Networks

There was a new cult this year at OFC, the ‘Cult of Open.’ It formed from rising sentiment that the lack of interoperability of vendors in optical networks is a major problem and that the industry needs to embrace hardware dis-aggregation.

This is not a bad cult – it ignited a healthy debate that illuminates both the positive and negative aspects of open networks and closed single-vendor networks. But some members of the Cult of Open overlook an inconvenient truth – closed networks from one vertically integrated vendor can vastly outperform open networks in some cases. Cignal AI’s key takeaways concerning open optical networks and hardware dis-aggregation include:

  • Facebook’s Voyager Platform
  • Open ROADM and Line Systems
  • Benefits of Vertical Integration

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Requires Optical Active Insight subscription.

OFC 2017 – Coherent Technology

400G Coherent and Beyond
Ciena had a blockbuster announcement at OFC 2017, but there was plenty of other interesting news to feast on. Cignal AI’s key takeaways concerning coherent WDM include:

  • The outlook for 200G and CFP2-ACO volumes in 2017
  • Opinions on Ciena WaveLogic Ai Licensing
  • The roadmap review for 400G/600G & Acacia Pico
  • Sizing the risk and reward for the 400G ZR market

Requires Optical Active Insight subscription.

Investor Call – OFC 2017 Takeaways

Andrew Schmitt provided key OFC 2017 takeaways during an investor call hosted by Troy Jensen of Piper Jaffray. Sixty-seven investors participated. Topics of interest included:

  • Impact of Ciena’s Wavelogic AI DSP Licensing
  • Outlook for Coherent Port Shipments in China During 2017
  • Market Outlook for CFP2-ACO/DCO and QSFP28 Markets
  • Potential Vertical Integration by Intel or InPhi
  • Timing of Metro Coherent and ROADM deployment in China
  • Chinese SARFT Capex Guidance
  • Roadmap for 400G and 600G Coherent
  • Observations on Infinera, Ciena, Acacia, Oclaro, and Neophotonics

Following is a summary of the key takeaways, as well as a full transcript of the discussion. Cignal AI clients can also listen to an audio replay.

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Requires Optical Active Insight subscription.

4Q16 Optical Hardware Forecast

On February 27th, Cignal AI issued full optical equipment market share analysis for 4th quarter 2016 (4Q16). This second report, issued on March 9th, extends our analysis and summarizes forecasts and outlooks for the industry through 2021.

Subscribers to the Optical Hardware Report are able to download an excel file with actual results through 4Q16 along with detailed, up-to-date forecasts. A compilation of our latest analysis is also available in both web format as well as .pdf.

Excel PDF


There were some minor changes to our forecast during 4Q16:

  • Updated LH v Metro WDM mix in Japan to adjust for 100G rollout
  • Adjusted SLTE forecast to moderate declines in later years
  • Slight changes to EMEA and NA for 2017 based on CY16 results.

A detailed discussion of our near and long term forecasts follows.

Requires Optical Hardware subscription.

4Q16 Optical Hardware Results

Cignal AI has released its 4th quarter 2016 (4Q16) optical hardware market share analysis, which includes a summary of revenue results for the quarter as well as the entire calendar year 2016 (CY16).


Global spending on optical network equipment increased in all global regions except North America during CY16.

  • Nokia and ADVA were the only vendors recording significant gains in North America in a challenging 2016 environment as growth in Cloud and Colo spending failed to offset decreases in Incumbent capex. Overall, NA spending stalled in the face of the beginning of the transition from long haul to metro WDM capex.
  • Huawei drove EMEA’s modest annual spending growth in 2016, as its strong performance in this region masked the decline in revenue experienced by other equipment vendors.
  • Optical equipment spending in China – led by Huawei – increased dramatically. Deployment of coherent 100G ports doubled from that of the previous year. 2017 heralds even more rapid change, as Huawei and ZTE use new component technologies and the deployment of 100G moves to the regional level.
  • Outside of China, Ciena and Nokia outperformed their peers by leveraging leading edge 200G technology and tightly integrated supply chains. ADVA benefited from a wave of Cloud and Colo spending but now must face the uncertain revenue cycles that are characteristic of these customers. Infinera is scrambling to complete a critical product cycle while Fujitsu and Coriant navigate product and market transitions.
  • Subscribers to the Optical Hardware report can download an excel file with actual results through 4Q16. This Excel file contains only historical data, and it is an interim release. A subsequent file with updated forecasts and additional analysis will be available March 3, 2017.
Report Details Excel

Detailed analysis of the market and its participants during 4Q16 and the 2016 calendar year follows.
Requires Optical Hardware subscription.

Ciena Wavelogic Ai and 400G Roadmap

This past October, Ciena announced its new coherent DSP, dubbed Wavelogic Ai. Ciena used the announcement to convey its coherent 100G+ roadmap and support for 400G. Ciena also hinted at important changes to its 100G+ business model as Wavelogic Ai is introduced to customer networks. These changes also cascade into the 400G component supply chain.

Wavelogic Ai doubles down on Ciena’s strategy of vertical integration of the DSP and optics, and extends it further into the control plane. The company continues to eschew the use of outside suppliers like Acacia, NTT Electronics, or Clariphy. We believe Ciena’s vertical integration is the company’s strategy for successfully competing with commodity hardware and dis-aggregated networks.
Requires Optical Active Insight subscription.

Investor Call – China 2017, CFP2-ACO, Coherent DSPs

Andrew Schmitt gave an update on the optical equipment and component market during an investor call hosted by Troy Jensen of Piper Jaffray on Tuesday, October 4. Sixty-eight investors participated. An extended Q&A session followed Andrew’s presentation, and topics of interest included:

  • China 100G port volume trends for 2H16 and 2017
  • Huawei’s upcoming 100G technology decisions and supplier purchasing shifts
  • CFP2-ACO shipments and the component & equipment supply chain for this product
  • Coherent DSP R&D developments and supplier updates
  • Updates on direct-detect 100G and PAM-4 development
  • Observations on Infinera, Ciena, Acacia, Inphi, and Clariphy and discussion of potential M&A activity

Following is a summary of the key takeaways, as well as a full transcript of the discussion. Cignal AI clients can also listen to an audio replay.

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ECOC 2016 Notes and Observations

Andrew Schmitt presented at the ECOC (European Conference for Optical Communications) in Dusseldorf, Germany during the week of Sept. 19. No time was wasted during the trip as Andrew fit in well over 30 scheduled meetings with component and equipment suppliers and end users of optical hardware.

The meetings were very productive and we gained new insight in several areas:

  • Huawei’s plans to transition to 100G CFP-DCO technology and what will follow
  • Updates on vendor selection and R&D in coherent DSPs
  • Details on the ongoing ramp in CFP2-ACO and the development of this new market
  • Overview of 400G market development
  • More insight into Nokia’s China Mobile optical design win

Requires Optical Active Insight subscription.

1H16 Optical Hardware Applications

Our 1H16 edition of the Optical Hardware Applications report has been published.

The Excel file contains:

  • Datacenter Interconnect Hardware market share and forecasts
  • Advanced Switching Hardware market share and forecasts
  • 100G+ Coherent port shipments and market share
  • 100G+ Metro and edge port shipments and forecast
  • 100G+ Port shipments and forecast by speed & technology

Subscribers can download the full excel file, registered users can view updated report information. Analysis is under way – we wanted to share market data with you as it became available.

Report Details Excel