Lightcounting releases a preview of quarterly sales database and comments on 25GIGE initiatives.

PART 1: GLOBAL SALES OF OPTICAL TRANSCEIVERS EXCEEDED $1 BILLION IN THE SECOND QUARTER OF 2014 AND THE MARKET SHOULD HOLD STEADY FOR THE REST OF THE YEAR.
Sales data collected by LightCounting from more than 20 leading optical component and module vendors indicates that the global sales of optical transceivers reached close to $1.1 billion in Q2 2014 an increase of 13% from the previous quarter and 22% from the same quarter of 2013. Each second quarter tends to be seasonally strong, often compensating for declines in the first three months of the year, but that was not the case this year. Growth in optical transceiver sales remained positive for the last five quarters, propelling this market to the new heights.

Broad-based demand for Ethernet optical transceivers accounted for most of the market’s growth. Sales of 40GbE and 100GbE products led the market’s growth in 2013 and remained strong in early 2014, but it was very solid demand for 10GbE and even 1GbE optics in the last two quarters that pushed this market to a new record. Such broad demand for all Ethernet transceivers suggests that it comes from a variety of customers, including mega-datacenter operators, enterprise and telecom network operators. A highly diversified customer base also explains the stability of this market segment over the last 2-3 years and suggests steady growth into the future. For example, if shipments of 40GbE product to mega-datacenter operators starts to flatten in late 2014, there will be a broader set of other customers and other products to rely on.

Sales of optical transceivers for wireless front-haul were also very strong in the first half of 2014 (http://www.lightcounting.com/News_042414.cfm ), but many vendors reported weaker than expected demand for these products in the current quarter and expectations for the end of 2014 are not clear yet. This is a very typical situation in an emerging market segment supported by a very small number of customers. China Mobile has been responsible for most of the demand for wireless optics so far, while other operators are just starting to use or even plan on using optical connectivity in their wireless networks. The good news is that emerging market segments, like this one, tend to be small and are not likely to impact the overall picture significantly.

PART 2: ETHERNET GOES ‘SLOWER’ TO GO FASTER

Hyperscale data centers are getting lots of press and excitement as they rapidly consume a larger piece of the market for servers, switches and optical modules.They are growing in size, “speeds and feeds.” Most mega data centers are installing 10GbE servers but some, such as Microsoft, need additional server bandwidth.A 40GbE server interface is overkill and not cost effective as it requires four 10G serdes per port and also needs 8 lanes of PCIe Gen 3 on the server to fill such a large pipe.This could change with a serial 40GbE solution but not in the next few years.
So in July, 148 representatives from at least 36 companies requested an IEEE 802.3 Study Group for “25 Gigabit/s Ethernet over a single lane for server interconnects.” Indeed, a step ‘backward’ in the Ethernet roadmap to speed up data centers.

This isn’t happening just because Microsoft and Google asked for it.It’s happening because it makes sense.

Data centers are now being served by switches running 10Gbps per lane in their switching ASICs. With implementation agreements completed in the OIF for 28G electrical interfaces, switching silicon and serdes vendors are all working to bring 25Gbps devices to market.The expected Tomahawk ASIC from Broadcom will switch 128-lanes of 25Gbps.

Microsoft points out that 25G serdes technology provides a higher port speed at a lower cost for servers.Uplinks at 100GbE would replace 40GbE in the switching fabric.Large data centers will be able to connect racks of servers with fewer ToR switches.A 10Gbps 128-lane switching ASIC can provide just 32 ports of 40GbE while the same size ASIC at 25G could directly connect 128 ports.

Mainstream 100GbE optical links are 4x25G over four fibers or four wavelengths. For copper we have 4x25G (CR4) on twinax and two variants of backplanes with 25G lanes. An SFP28 module form factor is already specified for 32G Fibre Channel. QSFP28 modules can be split out four ways from the switch to the servers just as we have seen at 40G.With the 25G building blocks readily available for technology re-use, the standards process can flow very quickly.

A lot of work has been done since July. Agreement and interest were sufficiently strong in last week’s face to face sessions that in just one meeting as a Study Group, objectives were defined and supporting documents drafted. Twinax-based Direct Attach Copper links are the key focus of the organizers of this IEEE Study Group but since servers also connect with optics, a 100m multimode optical fiber objective was included. In November the 25GbE Study Group should become a Task Force to work out the actual solutions and draft a standard.

While this IEEE effort is strictly for server interconnects, we now have little doubt that we will see 25GbE move into switching fabrics. Providers of 100G-SR4 and 100G-PSM4 modules will celebrate.But progress won't end there; a 25G Ethernet Consortium is already planning for 50GbE. What will that do to the 40GbE market? We’ll be doing our very best to keep our clients ahead of that learning curve.