There is always a next entrant in the next-gen transceiver market. Typically, these reflect only an order of magnitude leap in data rate, with (1) much of the new transceiver technology derived from the previous generation of transceivers and (2) much of the motivation to build the transceivers in the first place to support rapid growth in network traffic.
These two points remain true of the emerging generation of what we are calling next-generation transceivers. The rapid growth in network traffic is still a factor in driving the growth of this market. Consider the fact that there are still about three billion people who are not yet Internet users and the 6G mobile revolution has not yet begun. Perhaps there are also UHD video services in the future. CIR sees an opportunity for 800G and 1.6T transceivers (and beyond) to support a likely ongoing traffic boom driven by such services. It will not be just a matter of raw bandwidth. To support a possible future traffic boom, the new generation of transceivers will have to provide a declining cost per bit. And some commentators are predicting a rapid transition to 1.6T transmission.
The impact of new services: This time around, however, new factors are shaping the opportunities. It is not just conventional traffic that is driving the market—transceivers must now accommodate a new breed of latency-sensitive traffic—traffic from AI, ML, VR, AR and gaming sources. The new types of services require latencies that can be two orders of magnitude lower than today’s video streaming and videoconferencing services. For this reason, edge data centers are being established to facilitate the lower latencies associated with these new kinds of traffic. More generally, high-speed transceivers will become increasingly important in local communications—in data centers and access networks notably.
New kinds of transceivers: These trends will help create markets for short reach high-speed transceivers, but will go beyond this requiring radical new designs. The paradigmatic example here are the new 800G and 1.6T modules. Note that 800G transceivers are a selling opportunity right now, because they are already widely available albeit that they are cobbled together using MSAs originally intended for the 400G market.
A slightly less immediate opportunity can be found in marketing 800G transceivers that are specifically designed for 800G environments. There appears to be a growing 800G MSA “zoo” at the present time. There are, therefore, plenty of MSAs for both components/transceiver firms to champion and promote. This MSA zoo appears to us to be bigger than with earlier generations of transceivers, but what is definitely new are efforts to abandon the currently ubiquitous pluggability. This is a very fluid market situation and crying out for clever solutions.
Then there are 1.6T transceivers. These certainly don’t exist yet, except as future speculations or they are hinted at in technical/standards papers. The question about 1.6T, however, is whether it will emerge rapidly enough for firms to see it as an opportunity now. Our conjecture is that most components/transceiver firms are not spending a lot of time thinking about 1.6T right now. But we note that a recent paper that has emerged from the IEEE community makes the claim that 1.6T will be needed faster than many people expect.
The bottom line is that there is an emerging class of transceivers that will be necessary for tomorrow’s traffic patterns and make up and will be able to create near-term value and generate immediate revenues.
Emerging enabling technologies: In the past, new transceiver designs have been facilitated by higher capacity switching and multiplexing gear. This will also be true for next-generation transceivers—we are about to see commercial switching cores that can support dozens of 800G ports. Similarly, higher data rate transceivers have always borrowed technology from earlier transceivers, and this will be true for next-generation transceivers too.
However, CIR believes that even in terms of borrowing from earlier generations, there is something new. The specifics of the borrowing are somewhat surprising or disruptive. For example, PON transceivers are expected to adopt coherent communications and more complex modulation schemes as PONs emerge with 100G capabilities. Since PONs have always been designed around the idea of simplicity, it is somewhat surprising to consider a coherent PON.
There are also genuinely new technologies that will facilitate next-generation transceivers. Most notably is co-packaged optics (CPO), which is something genuinely new under the sun. Also, we must consider the related area of new types of lasers. Both quantum lasers and pluggable laser arrays seem to have a role in CPO, for example. Also, some thought must be given to the new directions in optical integration, which include the latest thinking in silicon photonics. Of particular interest here is novel silicon photonics-based modulators to maximize bandwidth and on-board coherent modulators.
China changes: Although not linked to the technological changes in transceivers that we are apparently on the cusp of, it is impossible to ignore the role of China, which has dominated the transceiver supply chain for several decades. It now seems that this is about to change because of geopolitical realities, internal Chinese politics and public health concerns (rapidly rising numbers of COVID cases) and an insistence that Western/Japanese products are kept out of Chinese networks.
With this in mind, this report discusses how possible it is to reshore transceiver manufacture based on new manufacturing/integration technologies, or at least to find other friendlier sites in low-cost countries where next-generation transceivers can be built.
Supply structure changes: Finally, the supply chain chapter in this report considers the issue of the two-tier supply structure for transceivers in the U.S. There are independent third-party suppliers for transceivers and other optical component products who price their products very low, but also a class of OEM-branded transceiver products that are little different from third-party transceiver products. In this report, we consider whether this situation can survive so much disruption in the transceiver industry and, if not, what can replace it?
More About This Report
The primary goal of this report is to spell out and quantify the business opportunities that are emerging in the next-gen transceiver market. Thus, the scope of this report comprises mostly transceivers operating at historically high data rates and supporting new kinds of traffic. These transceivers are enabled by technologies including the latest variations on integration, coherent optics, etc.
The reason CIR believes the primary goal of this report is important is that the kinds of transceivers that we are talking about here are often potential near-term revenue earners. In other words, the opportunity that next-generation transceivers present is (nearly) immediate.
In addition to products and technology, this report also considers major supply chain changes that are occurring at the same time that these new transceivers are appearing on the market. The most important of these changes is the decline of China as the dominant source of manufacturing for transceivers and how it will be replaced in the supply chain. The report also discusses the future of the current supply chain arrangements in the transceiver industry including the surprisingly wide price differentials.