Yole: The optical transceiver market is expected to reach US$22.4 billion in 2029

[xiaomo]

The outlook for the optical module market is bleak due to reduced data center demand and capital expenditure constraints. However, starting in March 2023, demand for 800G modules surged, driven by hyperscale customers such as Google, Amazon, and Nvidia, resulting in a significant increase in orders and shipments. Microsoft and Meta also increased demand for 400G modules in the second half of 2023, reflecting the expanding AI-driven market. Suppliers are preparing for this growth by increasing production capabilities and securing raw materials to prepare for substantial revenue growth in the 800G and 400G segments.

Optical transceiver market revenue will decline slightly from US$11 billion in 2022 to US$10.9 billion in 2023, but is expected to reach US$22.4 billion by 2029, driven by cloud service operators and national telecom operators. High demand for high data rate modules above 400G. Revenue growth is expected to reach 27% in 2024 due to Nvidia's large AI infrastructure orders and data center network upgrades to 800G.

Demand for 400G and 800G datacom transceiver modules, particularly from Nvidia, Google, and Amazon, has had a significant impact on revenue. Coherent and Innolight lead the way in multimode and singlemode applications, respectively. The industry is moving from 100Gb/s to 200Gb/s per lane speed for 800G links, aiming to reduce power consumption and cost. EML and CW-DFB devices are ready for 200G/channel applications, while 200G/lambda VCSELs are expected to enter volume production in 2026.

Integrated photonics holds the promise of enabling low-cost, scalable optical solutions, especially in communications. As optical links move toward higher speeds and shorter distances, silicon photonics (SiPh) stands out. Utilizing CMOS technology, SiPh offers high performance, low cost, high throughput and mass production advantages. SiPh can host a variety of photonic components but has limited laser sources compared to III-V materials such as InP and GaAs.

An alternative to CPO is linearly driven pluggable optics (LPO), which has no DSP or CDR and reduces power consumption and latency. This is critical for applications such as switch-to-switch, switch-to-server, and GPU-to-GPU connectivity in ML and HPC. The LPO will be suitable for multimode (VCSEL) and singlemode applications (EML, SiPh), but will work in conjunction with linear modulators such as TFLN, BTO and Organics. LPO's technology ecosystem is ready, with 100G SerDes already integrated into network switch chips.

Discussions at OFC 2024 focused on Linear Receive Optics (LRO) for 1600G (8x200G) applications, which can improve performance, manufacturing margins and robustness.

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