The optical networking market is in a peculiar situation. While manufacturing facilities have closed during the global coronavirus pandemic, the demand for networking and cloud services was even higher due to the quarantine of people who work and communicate from home, and who take advantage of digital entertainment connected to the internet. It seems that the optical communications market should recover rapidly.
Optical transceivers are widely used in server network cards, switches, routers and wireless base station equipment in a variety of network architectures and applications. Distances covered start from less than 50 meters for server and storage interconnections in data centers and enterprise networks to more than 800 kilometers in telecom networks. Furthermore, the exponential increase of capacity of digital communication networks and growing numbers of optical ports impact optical module technology hugely. Basically three material platforms are used in today’s optical transceivers – Gallium Arsenide (GaAs), Indium Phosphide (InP) and Silicon Photonics. Each of these technological platforms provides cost-effective solutions and addresses different applications based on distance within fiber-optic networks.
Revenue generated by the optical transceiver market reached around $7.7B in 2019 and is expected to reach $17.7B in 2025 at a compound annual growth rate for 2019-2025 (CAGR2019-2025) of 15% according to the report Optical Transceivers for Datacom & Telecom 2020. This growth is driven by high optical module cost erosion coupled with high volume adoption of high data rate modules above 100G by big cloud service operators and national telecom operators, which results in an increase in fiber-optic network capacity.
Its broad product selection and innovative technology have made II-VI the optical module manufacturer of choice for all major networking equipment vendors worldwide. Martin Vallo, Lighting Technology Analyst at Yole Développement, had the pleasure of interviewing Vipul Bhatt, Senior Director, Strategic Marketing, Datacom, and Sanjai Parthasarathi, Chief Marketing Officer at II-VI Incorporated, and discussing the current trends in the optical module market.
Martin Vallo (MV): II-VI Incorporated is a global leader in optical modules and a vertically integrated manufacturing company that develops products for diversified applications. Could you describe your activities in optical communications?
Sanjai Parthasarathi (SP): II-VI is a leader of optical communications products in the world based on recent market studies. We are a vertically integrated manufacturer, have one of the broadest portfolios in the industry, and sell at various levels of the value chain – materials, components, modules, and subsystems. We have products in all parts of the optical network – access, metro, long haul, and submarine, as well as datacenter intra- and inter-connects. We also provide optics for storage and high-performance computing. We are a leader in transmission, amplification, wavelength management, switching, and monitoring. Our core competency is based on our differentiated engineered materials, semiconductor lasers, integrated circuits, and electro-optics designs. Our materials platforms include GaAs and InP semiconductor devices, birefringent crystals, magneto-optic and thermoelectric materials, thin-film filters, and advanced coatings.
MV: What applications in data centers and telecom does II-VI target? What technology platforms, including materials and laser types, do you offer your customers in the Datacom and Telecom markets?
SP: Our multimode transceivers and active optical cables, which are based on GaAs optics, serve intra-datacenter, server-to-server, and server-to-switch connections. Our single mode transceivers, based on InP optics, connect longer-reach intra-datacenter, inter-datacenter, and telecom, including access, metro, and long-haul applications. With this broad range of products, we can meet the needs of hyperscale data centers, as well as smaller, enterprise data centers. For wireless fronthaul applications, we provide single channel “grey” and CWDM/DWDM transceivers, while for wireless back-haul and other telecom applications we provide coherent transceivers up to 400 Gbps. We also provide components for line-card solutions that transmit at 600 and 800 Gbps.
MV: At the end of 2018 you announced the acquisition of Finisar, the optical component and subsystems market share leader. How can you leverage your portfolio of products and technology platforms by combining with Finisar? What are your plans for the future?
SP: We completed our acquisition of Finisar back in September 2019. Our integration process is ahead of schedule and our customers have responded with lots of enthusiasm. This resulted in a significant increase in design-in activities, qualifications, and design wins, as well as volume orders and shipments.
Finisar was a pioneer in transceiver design, as well as the world’s largest transceiver manufacturer. It brought to II-VI a leading-edge InP laser platform, which also enables us to penetrate new markets beyond optical communications. While our transceiver business, both in datacom and telecom, is making tremendous progress in terms of operational efficiencies, we primarily focus on bringing high-end transceivers into the market. We have also made a major strategic move to begin selling our Finisar transceiver components, including lasers, detectors and ICs, into the merchant market. These components join our VCSELs, filters, and other optics that II-VI has already been selling for many years. In a very short span of time, we engaged, designed in, qualified, and successfully began shipping in volume against production orders, including InP lasers.
MV: Today’s optical transceiver market is highly competitive, especially for Datacom. How has the optical module business changed in the past five years? What are the main drivers today? What were decisive factors for your success?
Vipul Bhatt (VB): Finisar was a technology pioneer and market leader for datacom transceivers. While the value chain has changed over time, the differentiating technologies in a transceiver remain fundamentally the lasers, integrated circuits, and module integration. Semiconductor laser performance, especially, becomes increasingly critical as data rates increase. Over the past five to six years, we have seen webscalers undertake huge infrastructure buildouts and we expect these investments to continue. Webscalers have leveraged their purchasing power to influence the development of nonstandard transceiver solutions customized to their requirements. They have also been able to tap new transceiver suppliers, the pure-play integrators enabled by the availability of a merchant supply of lasers and ICs.
However, as the market transitions to higher speeds, including 400G and 800G, the ability to leverage an internal team of designers for lasers, ICs, and transceiver integration will favor, we believe, the larger, vertically integrated players.
MV: The biggest trend in optical interconnects is 400G. From public discussions with professional communities, it is evident this trend is impacting not only the technologies inside the modules but also the competitive industrial landscape. How do you see this trend from both perspectives? What network applications, such as short-reach, Data Center Interconnect (DCI), metro or long-haul, are the most attractive for 400G modules at the moment?
VB: While we expect to fully participate in the 400G ramp in the datacenter that has just started, we also expect to lead in the often overlooked but substantial 200G ramp. 200G and 400G include both short-reach and long-reach intra-datacenter connections. We recently announced a 100 Gbps PAM4 VCSEL that will enable 4-lane 400G multimode products and a 100 Gbps PAM4 EML, that will enable 4-lane 400G single mode products.
There is a lot of excitement about the deployment of 400G ZR, and for good reason. This is the first time that coherent DWDM transponders can be directly plugged into datacenter switches for inter-datacenter links. We have products for both ecosystems, including components and modules. We recently introduced a revolutionary pluggable optical line system (POLS). The POLS eliminates the need for a stand-alone line system to transmit 400G ZR signals. In addition, the network operating system on the switch-router manages the optical line system directly, enabling plug-and-play configuration and eliminating the need for a separate optical management plane.
MV: What are the technological difficulties of increasing channel speed in optical fiber communications? What are the major approaches to improving system capacity?
VB: At higher speeds, signal integrity within the transceiver modules becomes increasingly critical, again favoring those companies that can optimize the integration of lasers, receivers and ICs. From an optical transmission perspective, fiber dispersion, component bandwidth, and noise become the limiting factors. By improving laser characteristics such as modulation frequency and spectral width, and by improving receiver-side processing of the signal, we can improve system capacity. We can also leverage WDM concepts to allow larger numbers of lower speed channels from a single transceiver module, both for longwave InP-based modules for CWDM and LAN-WDM and for shortwave GaAs-based modules for SWDM.
MV: There is huge demand for optical modules supporting data rates over 100G including state-of-the-art technology such as PAM4 or QAM modulations that are much more expensive. What drives the market to migrate to higher speeds? Could you give more insights into the today’s business model?
VB: Bandwidth grows at a faster pace than the system radix*. It’s possible up to a point to get by with lane multiplexing or a cluster of nonblocking switches, but ultimately the link speed must be increased to minimize latency and cost. It’s the fundamental reason driving the demand for transceivers with higher bit rates.
MV: Silicon photonics might be a key enabling technology for further development of optical interconnect solutions to eliminate the cost and complexity of the optical package. Is it the winning technology? What will the path of InP platform?
VB: Silicon photonics is one of several promising technologies. It may excel in scenarios where high lane count and parallel lanes dominate. There are other scenarios where discrete components provide a more cost-effective path. In optical communications, a broad set of tools and techniques are needed. Silicon photonics, InP, and VCSELs are currently the three pillars of the optics industry, and all have their place and II-VI leverages all of them.
MV: While 400G optical modules are only now starting to be deployed at a large scale the discussion about what’s next is already here. Naturally, the following data rate is expected to be 800G, and that could take advantage of today’s technology using parallelization. However, how do you see future technology beyond 800G and its impact on the industry?
VB: The one thing we can be sure of is that there will be a next-level high speed, and one after that, and so on. We must gear up to serve the industry with more sophisticated components, higher signaling rates, advanced modulation techniques, more efficient packaging, and more complex receiver-side signal processing. These advances are needed, and we are excited to work on delivering them.
SP: How is the COVID-19 pandemic affecting the optical communications technology market?
Work from home and study from home have stressed both the wireline and wireless infrastructures. The optical communications market pre-COVID was projected to have some strong growth driven by both datacenter infrastructure upgrades as well as 5G preparedness worldwide. We believe that those plans have only accelerated. In addition, communications service providers have all increased their capex after three years of flat spend. We believe we are in the early stages of a large, multiyear optical communications infrastructure build-out.
*In network topology, a radix is a measure of the number of connections supported by a node. In simple terms, a higher-radix Ethernet switch means it can support a larger number of ports. High-radix switches reduce network cost and latency.
Sanjai Parthasarathi joined II-VI in 2013 and has been the Chief Marketing Officer since 2019. With over 28 years of broad management and technical experience, Dr. Parthasarathi has held a variety of progressive roles in R&D, manufacturing, product line management, and marketing, including senior business and technical management positions at Avanex Corporation, Oplink Communications, TeraStor, Western Digital, and Concurrent Technologies Corporation. He holds a Ph.D. in Engineering Science from the Pennsylvania State University.
Mr. Vipul Bhatt is the Sr. Director of Strategic Marketing, Datacom, at II-VI Incorporated. Vipul has a track record of over 25 years of pioneering product and business development in optical networks, spanning companies such as Corning, Cisco and Inphi. He has been an active contributor to optical standards development in IEEE. He holds a Master’s Degree in Electrical Engineering from Columbia University, New York.
Martin Vallo, PhD is serves as a Technology & Market Analyst specialized in solid-state lighting technologies, within the Photonics, Sensing & Display division at Yole Développement (Yole). With 9 years’ experience within semiconductor technology, Martin is involved today in the development of technology & market reports as well as the production of custom consulting projects at Yole.
Prior his mission at Yole, he worked at CEA (Grenoble, France), with a mission focused on the epitaxial growth of InGaN/GaN core-shell nanowire LEDs by MOCVD and their characterization for highly flexible photonic devices. Martin graduated from Academy of Sciences, Institute of Electrical Engineering (Slovakia) with an engineering degree in III-nitride semiconductors.
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