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Same as other                    phases: it’s about                   cost reduction for the                     network o...
Outline       Network operator requirements and demand       The next phase in access technologies for passive optical  ...
Growing telecommunications industry      2Q11 annualized                                       Service providers (SPs)    ...
Carriers usually manage annual capital expenditures    (Capex) to 15 to 16% of revenue                                   F...
The market reality:                 Network operators               want to spend less ($)               while supporting ...
Cost depends on segment requirements    Premises                  ADM                        Metro access                 ...
Focus on Long-haul core and “Access”    Two ends of the spectrum     Premises           ADM                  Metro access ...
Perspective on cost in access: FTTH/B leads the growth in    wireline broadband relative to other access technologies     ...
Most of the FTTx growth comes from AP led by China                                       China’s consumer FTTx subscriber...
Resulting in enormous pressure on supply chain to     lower cost        A cost sensitive market segment—residential acces...
Network Core Perspective: Lightening 100G progress                                                                        ...
Because 100G reduces the cost of transport        40 and 100G rules—they must coexist with 10G on the same line          ...
Outline        Network operator requirements and demand        The next phase in access technologies for passive optical...
Optics is one of the most expensive part of equipment         Central Office                                 Customer Prem...
Traditional PON component ecosystem:     Transceiver vendor role as assemblers/packagers                   Optical chip   ...
EVERYONE (transceiver vendors) sources lasers,     photodiodes and integrated circuits        CyOptics and Mitsubishi are...
Market driving 25-30% ONT transceiver price decline     per year           Transceiver and bidirectional optical sub assem...
But market can’t beat suppliers endlessly. Fundamental     changes are needed to meet price decline demand        Photoni...
Photonic integration promises a cost reduction path            Free-Space Optics            Planar Lightwave Circuit      ...
OneChip Photonics approach promises        Monolithic photonic integration circuit (PIC) in Indium Phosphide           I...
But the market is cautious because        Marginal success for high volume, low cost products which is the         promis...
Another cost reduction approach is to integrate the     PMD with the MAC        Integrate physical media dependent (PMD) ...
Flatten the food chain by using BOSAs              Eliminate transceiver to equipment vendor margin              BOSA as...
Flatten further by integrating the PMD into the MAC          Attractive to large ODMs as may lead to better margins as fe...
Attractive cost reduction estimates              BOSA on Board save about $6.0 in GPON ONT, but not without risks     PON...
CPE device manufacturers or ODMs who we should pay     attention to as the balance of power may shift to them     Cambridg...
Other structural changes in supply chain to reduce     cost             CPE Vendors                System Vendor      Sel...
Fundamental technology to reduce cost and increase     capacity        10G PON                            Standardization...
Summary of cost reduction approaches for PON ONT        Photonics integration        Integrated circuits integration    ...
Outline        Network operator requirements and demand        The next phase in access technologies for passive optical...
Focus on Long-haul core     Premises          ADM                 Metro access   Metro core         Long-haul core        ...
High bandwidth opportunities        100 G—the near-term goal for mainstream bandwidth           Settled on modulation fo...
Components and modules needed for DWDM transport                                       DWDM transport                     ...
Two markets with different suppliers and dynamics           Components                              Modules      Lasers  ...
100 G DWDM initially led by discrete ports (OEM purchase     components and makes transponder due to expediency)          ...
Expect modules to grow at expense of discrete ports        Historical trend           OEMs want to win the first slots s...
And component opportunities for coherent receivers                        Tunable                                      Opt...
Overcrowding already in some areas, one supplier in     others      Modulator    Integrated        TIA        A/D and DSP ...
10 G leads DWDM transceiver market in revenue and     40 G goes ahead by 2013                      > 10G   10G    40G   10...
40G transitioning to modules—a sign of maturity                               Merchant ports   Captive ports          100%...
Brief modulation format review                            ODB                   DPSK              DQPSK                   ...
DQPSK is mostly components while DP-QPSK is     transitioning to modules                                ODB    DPSK     DQ...
Opportunity for DQPSK discrete component                   Tunable                                 Optional               ...
Stable supply space     Tunable dispersion   Delay line                Integrated balanced     Compensators (TDC)   interf...
But long term the market is for the DP-QPSK with the     coherent receiver        Due to its synergy with the 100 G     ...
DWDM transceiver at 10 G and below is far from dead        Commands more that 50% of the market revenues for next few yea...
Outline        Network operator requirements and demand        The next phase in access technologies for passive optical...
OC is challenged to hold onto margin improvements                                     Operating margin             Gross m...
Low cost PON demand does not mean low     performance        Use avalanche photodiodes in receivers           Used to be...
Component vendors may fear that lessons learned in     PON migrates back to metro and core        Metro and core demand t...
Spending R&D budget in the “right” areas        Which modulation format was the constant 40G question asked by         mo...
Timing is an important element        First to market does not necessarily mean market leadership           Market lagga...
Pay attention to the competitive landscape        New technical advances can displace market leaders           See Finis...
Summary        Network operators want to spend less while supporting more traffic         and end-customers        PON O...
Thank you!55                © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
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Daryl innis - OVUM - The Next Phase for High Bandwidth Components

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  1. 1. Same as other phases: it’s about cost reduction for the network operator The Next Phase for Passive Optical Components and High Bandwidth Optical Components Daryl Inniss And growing a profitable business for Daryl.Inniss@ovum.com the vendor 29 September 20111 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  2. 2. Outline  Network operator requirements and demand  The next phase in access technologies for passive optical components  High bandwidth opportunities for emerging optical components  Risks and challenges with delivering high bandwidth products2 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  3. 3. Growing telecommunications industry 2Q11 annualized Service providers (SPs) revenues $1.86 America Movil, AT&T, BT, China Mobile, China trillion, up 5% Telecom, FT, DT, NTT, Saudi Telecom, Sprint, 2Q11 vs. 2Q10 Telefónica, TI, Verizon, Vodafone, Zain... Infrastructure vendors’ System vendors 2Q11 annualized Alcatel-Lucent, Brocade, Cisco, ECI, Ericsson, Huawei, revenues $43.42billion, Juniper, Motorola, NEC, Nokia/NSN, Nortel, Tellabs, up 17% ZTE... 2Q11 vs. 2Q10 Optical components Optical Component Avago, Finisar, JDSU, Sumitomo, Oclaro, Opnext, 2Q11 annualized Source Photonics... revenues* of $6.20 billion, up 30% 2Q11 vs. 2Q10 Subcomponent and material Ovum does not track subcomponents quarterly and does not track Source: Ovum materials. * Includes only optical and datacom components3 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  4. 4. Carriers usually manage annual capital expenditures (Capex) to 15 to 16% of revenue Fixed Mobile 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Opportunity: Network operators faced with managing single digit revenue growth per annum while traffic grows at double digit rate4 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  5. 5. The market reality: Network operators want to spend less ($) while supporting more (traffic, subscribers) COST REDUCTION Exactly the purpose of optics in telecommunications5 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  6. 6. Cost depends on segment requirements Premises ADM Metro access Metro core Long-haul core EoF Ethernet Switch Multi-degree ROADM (WSX) DSL DSLAM OCS (OXC) PL OED access ring EoS MR WDM (ROADM) FTTP ROADM IOF ring 3000-4000 Km ONT reach without regeneration OLT Metro WDM WDM access ROADM ring (OTP) EoW Source: Verizon and Ovum-RHK Inc. EoF = Ethernet over Fiber; OTP = Optical Transport Platform; WSX = Wavelength Selective Cross-connect; EoS = Ethernet over SONET; EoW = Ethernet over WDM; ONU = Optical Network Unit; ONT = Optical Network Terminal; IOF = Interoffice Facility; OED = Optical Edge Device (MSPP) FTTP = Fiber to the Premises; PL = Private Line6 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  7. 7. Focus on Long-haul core and “Access” Two ends of the spectrum Premises ADM Metro access Metro core Long-haul core Access Short distances Long distances Many connections Highest bandwidth High bandwidth Highest reliability Today Megabits Today 10G Tomorrow 1G Tomorrow 100G Metric $/subscriber Metric: $/G/km Modest distances High bandwidth High reliability Grooming Aggregation Today 10G $/G/km7 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  8. 8. Perspective on cost in access: FTTH/B leads the growth in wireline broadband relative to other access technologies DSL CMTS FTTB/FTTH 800,000 Subscribers (000) 600,000 400,000 200,000 0 2010 2011 2012 2013 2014 2015 2016 22% CAGR for FTTH/B compared to 2% for DSL and 5% for cable modem8 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  9. 9. Most of the FTTx growth comes from AP led by China  China’s consumer FTTx subscriber base will grow to over 110 million in 2016 from under 10 million in 2009 FTTx consumer subscribers by country or region China Japan & Korea Rest of AP Europe NA Rest of World 250,000 FTTx consumer subscribers (000) Remainder represents 200,000 31% of FTTx subscribers in 2016 150,000 Japan and Korea represent 19% of worldwide FTTx subscribers in 2016 100,000 China represents 50% of worldwide FTTx 50,000 subscribers in 2016 0 2009 2010 2011 2012 2013 2014 2015 2016 Source: Ovum Year-end9 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  10. 10. Resulting in enormous pressure on supply chain to lower cost  A cost sensitive market segment—residential access  Delivering into a low cost market—China  With outlook for tens of millions of units per year10 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  11. 11. Network Core Perspective: Lightening 100G progress 2010 2007 2008 2009 Standards, Early R&D Demos Trials & first products adopters  Verizon tested  NTT demo’d 134  Nortel completes live trials of its 100G with Alcatel-Lucent wavelengths @ 111Gbps Banverket ICT, Neos Networks, JANET  AT&T, Cisco and Opnext 100G with live each over 3600km and SURFnet demonstrate single 100G traffic (504km) (7208km in 2009)  Nortel/Telstra completed 2,038 km 100G wavelength using network Tampa – trial on existing fiber link coherent PM-QPSK on a Miami, FL live AT&T ULH link  AT&T and NEC demo’d  Qwest announced 2010 deployment of between Louisiana and 61 wavelengths @ ALU 100G network Florida 114Gbps each Alcatel-Lucent announced  Verizon, Juniper, NEC and Finisar complete  Verizon tested NSN 100G interfaces for 7750 100G field trial testing 100G over 1040km SR, 7450 ESS and 1625 interoperability between distance ON system, router and LambdaExtreme CFP MSA vendor  Comcast tested Nortel equipment 100G prototype – 300km  Ciena and NYSE Euronext announce  IEEE 100GE standard span of live network 2010 deployment of 100G approval in June 2010  NYSE Euronext  VZ tested Nortel 100G  DT and Ericsson complete 100G field trial deployment scheduled on high PMD fiber  Qwest network-wide Verizon deploys 1st deployment scheduled commercially available 100G from Nortel11 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  12. 12. Because 100G reduces the cost of transport  40 and 100G rules—they must coexist with 10G on the same line  Hence reuse all common equipment (amplifiers, dispersion compensators, and filters)  Even if cost is more than 4 times 10 G for 40 G or 10 times 10G for 100G, it is still cheaper to install on a line containing 10 G as compared to lighting a new fiber. Stated differently, capacity upgrade with 40 and 100G is a winning solution  And coherent receivers provides added benefits for greenfield  Eliminate use of dispersion compensators  Reduce amplification requirements  Reduce cost  Low latency operation12 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  13. 13. Outline  Network operator requirements and demand  The next phase in access technologies for passive optical components  High bandwidth opportunities for emerging optical components  Risks and challenges with delivering high bandwidth products13 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  14. 14. Optics is one of the most expensive part of equipment Central Office Customer Premise ONT ONT . . OLT Splitter . ONT % Optics Data rate (G) Distance Splits % Optics OLT Down Up (km) ONT EPON 5 1 1 10/20 16/32 20 GPON 10 1.24/2.5 0.62/1.24 20 64 4014 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  15. 15. Traditional PON component ecosystem: Transceiver vendor role as assemblers/packagers Optical chip BOSA (bidirectional optical Transceiver Equipment vendor subassembly) TO-can BOSA Transceiver OLT & ONU Laser die packaging assembly assembly equipment Source: Accton Limiting Laser PIN die TIA OLT + ONU amplifier driver APD die chip Packaging is about 70% the cost of transceivers ASIC chip chip Optical interface chip vendor ASIC vendor15 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  16. 16. EVERYONE (transceiver vendors) sources lasers, photodiodes and integrated circuits  CyOptics and Mitsubishi are the major merchant optics suppliers  Lasers  PIN die  APD die  Gennum, Vitesse, and Maxim supplies TIA, LA and laser driver  Mindspeed supplies TIA and laser drivers  Micrel suppliers laser drivers  Sumitomo supplies TIAs Near commodity market for transceivers suppliers Suggests assembly/packaging, delivery, price as critical factors16 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  17. 17. Market driving 25-30% ONT transceiver price decline per year Transceiver and bidirectional optical sub assembly (BOSA) suppliers NeoPhotonics HG Genuine Hisense Accelink Source Photonics APAC Opto Coretek Opto Ligent Photonics Electronics Inc Corp. Inc WTD Furukawa Delta Electronics CyOptics OneChip Shenzhen Hymax Many others in Photonics Inc. FiberTower Optoelectronics China Communications  Transceiver suppliers are mostly in low cost manufacturing regions  Notably absent are the leading OC transceiver vendors  Finisar announced entering with GPON but have not reported significant revenues to date17 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  18. 18. But market can’t beat suppliers endlessly. Fundamental changes are needed to meet price decline demand  Photonics integration—but cautious optimism  Integrated circuits integration  Flatten food chain  From transceivers to bidirectional optical sub assemblies (BOSAs) on board  Vertical integration  BOSA  System vendor18 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  19. 19. Photonic integration promises a cost reduction path Free-Space Optics Planar Lightwave Circuit OneChip approach optics assemblies from off-the- hybrid SiO2-Si based PLC Photonic Integrated Circuit shelf discrete components (only passive) (passive & active) • discrete actives and passives • discrete actives • no discretes • up to 20 parts to assemble • up to 10 parts to assemble • all functions in one part Source: OneChip Photonics19 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  20. 20. OneChip Photonics approach promises  Monolithic photonic integration circuit (PIC) in Indium Phosphide  Integrates three discrete components  Replaces optical chips, TO Can and possibly BOSA assembly  Suited for automated assembly  No active fiber alignment OneChip Diplexer PIC 1310nm DFB Laser MPD WDM SSC Splitter 1490nm PD20 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  21. 21. But the market is cautious because  Marginal success for high volume, low cost products which is the promise of photonic integration  Success with passive components  Splitters, arrayed wave guides, and variable optical attenuator multiplexers are the main high volume examples  No example of high volume, low cost active components where photonics integration is key to delivering to the market demand to date  Active components incumbent supply chain s very strong  current food chain using TO Can has long history of high volume, low cost manufacturing21 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  22. 22. Another cost reduction approach is to integrate the PMD with the MAC  Integrate physical media dependent (PMD) with the MAC  Advantages  Cost reduction  Size reduction  Lower power consumption  Disadvantages  Combining digital and analog functions puts design constraints  Limits upgrade timing  Some vendors have to design in a new MAC  Who is doing this  Lantiq and PMC-Sierra have announced  Savings  $1-$2 per ONT22 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  23. 23. Flatten the food chain by using BOSAs  Eliminate transceiver to equipment vendor margin  BOSA assembly can be done by ONU/ONT CPE vendors (ODMs) or remain with transceiver vendors  Today, several large ODMs are assembling BOSAs themselves BOSA Equipment Optical chip vendor TO-can BOSA ONU/ONT CPE packaging assembly equipment Laser die vendor e.g. ODM PIN die Source: Ovum APD die Limiting Laser ONU MAC23 TIA chip amplifier driver SoC © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  24. 24. Flatten further by integrating the PMD into the MAC  Attractive to large ODMs as may lead to better margins as fewer component suppliers are needed to build CPE BOSA Equipment Optical chip vendor TO-can BOSA ONU/ONT CPE packaging assembly equipment Laser die vendor Source: Ovum e.g. ODM24 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group. PIN die
  25. 25. Attractive cost reduction estimates  BOSA on Board save about $6.0 in GPON ONT, but not without risks PON CPE Supply Analysis BOSA Transceiver BOSA On Board BOSA On ONT Price Total Cost Board (4)FE+(2)POTS Risks Saving Calibration Testing Qualification EPON $7.5 $13.0 $10.0 $3.0 $52.6 GPON $16.0 $25.5 $19.5 $6.0 $55.3 Acceptance Source: Accton  And new SoC with integrated Laser Diode Driver and Limiting Amplifier will further improve BOSA on Board cost25 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  26. 26. CPE device manufacturers or ODMs who we should pay attention to as the balance of power may shift to them Cambridge (CIG) T&W (Shenzhen DareGlobal Hisense(?) Gongjin Technologies Electronics Co.) Superxon Furukawa(?) Accton Technology CyberTAN Technology(?) Corp. Arcadia MitraStar Askey Computer XAVi Technologies Corp. the Alpha Group Comtrend (?) means unclear And many more of ODM status Note that system houses use a mix of in-house CPE and outsourced (ODM) solutions26 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  27. 27. Other structural changes in supply chain to reduce cost CPE Vendors System Vendor  Sell directly to network  Vertical integration operator, bypassing (Huawei as example) system vendor  Assemble own BOSA  Captive IC supply (HiSilicon)  Plug-and-play for network operator  Assemble own CPE  Plug and play for  Build or assemble own consumer optics if necessary27 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  28. 28. Fundamental technology to reduce cost and increase capacity  10G PON Standardization  WDM PON Reuse of installed base Develop ecosystem  Coherent PON Low cost  OFDM PON Path to lower cost Customer pull  etc Integration of optics and electronics to likely play a role28 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  29. 29. Summary of cost reduction approaches for PON ONT  Photonics integration  Integrated circuits integration  Flatten food chain  From transceivers to bidirectional optical sub assemblies (BOSAs) on board  Network operators bypassing OEMs to purchase ONTs  Vertical integration  BOSA suppliers  System vendor29 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  30. 30. Outline  Network operator requirements and demand  The next phase in access technologies for passive optical components  High bandwidth opportunities for emerging optical components  Risks and challenges with delivering high bandwidth products30 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  31. 31. Focus on Long-haul core Premises ADM Metro access Metro core Long-haul core Access Short distances Long distances Many connections Highest bandwidth High bandwidth Highest reliability Today Megabits Today 10G Tomorrow 1G Tomorrow 100G Metric $/subscriber Metric: $/G/km Modest distances High bandwidth High reliability Grooming Aggregation Today 10G $/G/km31 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  32. 32. High bandwidth opportunities  100 G—the near-term goal for mainstream bandwidth  Settled on modulation format and coherent receivers to accelerate development and reduce cost  Cost reduction due to multiple suppliers in alignment  Cost reduction due to use of electronics to clean-up signal  40 G—has ramped and continues to grow  Modulation format zoo still playing out  10 G –today’s leader, yesterday’s technology but not dead Demand is higher than supply for most 40 and 100G Yet market is still looking for best solution32 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  33. 33. Components and modules needed for DWDM transport DWDM transport (80–1000+ km) Switch router “Client” optics Switch router (100m–40km) Line-side optics Optical Optical transport transport Switch router Aggregation, Multiple lower-speed DSLAM, etc. with IPoDWDM clients in muxponder We’re talking about this connection33 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  34. 34. Two markets with different suppliers and dynamics Components Modules  Lasers  300 pin MSA transponder  Receivers  XFP transceiver  Modulators Components are sold to OEMs and module makers Modules typically sold to OEMs34 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  35. 35. 100 G DWDM initially led by discrete ports (OEM purchase components and makes transponder due to expediency) modules discrete ports 100% 80% 60% 40% 20% 0% 2010 2011 2012 2013 2014 2015 2016 ~1000 total ports shipped in 2010, approaching 100K by 201635 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  36. 36. Expect modules to grow at expense of discrete ports  Historical trend  OEMs want to win the first slots so they invest ahead of component suppliers  Component vendors focus on cost reduction  Power consumption improvements too  All OEMs not interested in developing 100 G36 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  37. 37. And component opportunities for coherent receivers Tunable Optional Tx 4 modulators CW laser modulator Mux 4 drivers Integrated 100G Coherent Receiver as defined by OIF 2 TIAs 90-deg 4 PDs A/D optical A/D Rx PBS Demux hybrid DSP 90-deg 2 TIAs A/D 4 PDs Local BS optical oscillator A/D hybrid New Product New Product CMOS Optical Integration37 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  38. 38. Overcrowding already in some areas, one supplier in others Modulator Integrated TIA A/D and DSP Mux/Demux receiver •JDSU •NEL •InPhi •Clariphy •Semtech •Sumitomo •JDSU •Fujitsu Osaka •Finisar Microelectroni Cement •Picometrix cs Europe •Oclaro •Neophotonics •Fujitsu •U2t Optical •Optoplex Components •Fujitsu Optical Components Stable Competitive Profitable Don’t know Profitable And others Stop-gap until module is ready38 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  39. 39. 10 G leads DWDM transceiver market in revenue and 40 G goes ahead by 2013 > 10G 10G 40G 100G 100% CAGR 137% 80% 60% 27% 40% 6% 20% 0% 1% 2011 2012 2013 2014 2015 201639 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  40. 40. 40G transitioning to modules—a sign of maturity Merchant ports Captive ports 100% 80% 60% 40% 20% 0% 2009 2010 2011 2012 2013 2014 2015 2016 But the story is modulation format dependent40 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  41. 41. Brief modulation format review ODB DPSK DQPSK DP-QPSK Bits per 1 1 2 4 symbol Distance (km) ~500 >500 >500 >500 Relative Low High Higher Highest Module cost today Commercial Opnext Oclaro Huawei Ciena (Nortel) comment (Stratalight) (Mintera) responsible for is main introduced for introduced most ports supplier. first major module shipped. It Oclaro deployment. uses recently Volumes has components. introduced 1st declined since Modules exist. moduleODB is Optical Duo-binary DPSK is Differential Phase Shift KeyingDQPSK is differential quadrature phase shift keying DP-QPSK is duo polarization quadrature phase shift keying41 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  42. 42. DQPSK is mostly components while DP-QPSK is transitioning to modules ODB DPSK DQPSK DP-QPSK 120% 100% % module 80% 60% 40% 20% 0% 2010 2011 2012 2013 2014 2015 201642 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  43. 43. Opportunity for DQPSK discrete component Tunable Optional Tx 2 modulators CW laser modulator Mux 2 drivers Integrated balanced receiver 2 balanced receivers Photodiode Demux TIA 2 DLIs TDC Amp Rx Photodiode Tunable dispersion compensator and integrated balance receiver43 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  44. 44. Stable supply space Tunable dispersion Delay line Integrated balanced Compensators (TDC) interferometers (DLI) receivers •Oclaro •ITF •U2t •Teraxion •Kylia •Fujitsu Optical •NEL •NEL Components •Etc. •Furukawa •Optoplex •NeoPhotonics •Optoplex And others44 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  45. 45. But long term the market is for the DP-QPSK with the coherent receiver  Due to its synergy with the 100 G  And this will be mostly a Modules market45 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  46. 46. DWDM transceiver at 10 G and below is far from dead  Commands more that 50% of the market revenues for next few years  New products are being introduced  Tunable XFP is shipping for revenue  Tunable SFP+ has been announced46 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  47. 47. Outline  Network operator requirements and demand  The next phase in access technologies for passive optical components  High bandwidth opportunities for emerging optical components  Risks and challenges with delivering high bandwidth products47 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  48. 48. OC is challenged to hold onto margin improvements Operating margin Gross margin 50% 40% 30% Percentage 20% 10% 0% 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 -10% -20% Source: Financial statements from AFOP, Avago, Avanex, Emcore, Finisar, JDSU, NeoPhotonics, Oclaro, Oplink, Opnext, and Source Photonics.  Industry aggregate gross and operating margins topped out in late 2010.  Despite recent decline, gross and operating margins are still near historic highs.  Revenue decline but also increased R&D cited as causes48 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  49. 49. Low cost PON demand does not mean low performance  Use avalanche photodiodes in receivers  Used to be a high-end photodiode for telecom core applications  Use distributed feedback lasers in transmitters  Used to be a high-end laser for telecom core applications  Use burst mode integrated circuits drivers at the ONU/ONT and burst mode receivers at the OLT  Developed for the PON market49 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  50. 50. Component vendors may fear that lessons learned in PON migrates back to metro and core  Metro and core demand the same access cost reduction schedule  Distributed feedback lasers  Avalanche photodiodes  Cost reduction practices developed in access are implemented in core and access  Limit use of isolators50 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  51. 51. Spending R&D budget in the “right” areas  Which modulation format was the constant 40G question asked by module developers  Multiple modulation formats were deployed  First deployed also first to vanish  Still waiting for coherent 40G modules  Still no metro 40G solution (optimized for 80 to 500 km)  OIF helped stabilize 100G DWDM solution, but client and metro are battle ground for competing approaches  See 10x10 MSA vs IEEE for client  See direct detect vs coherent for metro51 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  52. 52. Timing is an important element  First to market does not necessarily mean market leadership  Market laggards can win substantial market share  See Oclaro and its tunable laser business  Revenues and profits can be made with short-lived solutions  Opnext and Stratalight on ODB  High development activity does not lead to fast revenue  See 10G PON as example52 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  53. 53. Pay attention to the competitive landscape  New technical advances can displace market leaders  See Finisar overtaking JDSU in the wavelength selective switch market because market wanted 50 GHz53 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  54. 54. Summary  Network operators want to spend less while supporting more traffic and end-customers  PON ONT is a challenging cost reduction battleground  Photonic and IC integration approaches are emerging  Flattening the supply chain and vertical integration are attractive  Network core needs higher bandwidth (40 and 100G)  Market delivering modules and components  Sustaining profitability is challenging in this market, notwithstanding the demand  Keep innovating technology, business models, etc.54 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  55. 55. Thank you!55 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
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