Silicon photonics: "The excitement has gone"
The opinion of industry analysts regarding silicon photonics is mixed at best. More silicon photonics products are shipping but challenges remain.
Part 1: An analyst perspective
"The excitement has gone,” says Vladimir Kozlov, CEO of LightCounting Market Research. “Now it is the long hard work to deliver products.”
Dale Murray, LightCounting
However, he is less concerned about recent setbacks and slippages for companies such as Intel that are developing silicon photonics products. This is to be expected, he says, as happens with all emerging technologies.
Mark Lutkowitz, principal at consultancy fibeReality, is more circumspect. “As a general rule, the more that reality sets in, the less impressive silicon photonics gets to be,” he says. “The physics is just hard; light is not naturally inclined to work on the silicon the way electronics does.”
LightCounting, which tracks optical component and modules, says silicon photonics product shipments in volume are happening. The market research firm cites Cisco’s CPAK transceivers, and 40 gigabit PSM4 modules shipping in excess of 100,000 units as examples. Six companies now offer 40 gigabit PSM4 products with Luxtera, a silicon photonics player, having a healthy start on the other five.
Indium phosphide and other technologies will not step back and give silicon photonics a free ride
LightCounting also cites Acacia with its silicon photonics-based low-power 100 and 400 gigabit coherent modules. “At OFC, Acacia made a fairly compelling case, but how much of its modules’ optical performance is down to silicon photonics and how much is down to its advanced coherent DSP chip is unclear,” says Dale Murray, principal analyst at LightCounting. Silicon photonics has not shown itself to be the overwhelming solution for metro/ regional and long-haul networks to date but that could change, he says.
Another trend LightCounting notes is how PAM-4 modulation is becoming adopted within standards. PAM-4 modulates two bits of data per symbol and has been adopted for the emerging 400 Gigabit Ethernet standard. Silicon photonics modulators work really well with PAM-4 and getting it into standards benefits the technology, says LightCounting. “All standards were developed around indium phosphide and gallium arsenide technologies until now,” says Kozlov.
You would be hard pressed to find a lot of OEMs or systems integrators that talk about silicon photonics and what impact it is going to have
Silicon photonics has been tainted due to the amount of hype it has received in recent years, says Murray. Especially the claim that optical products made in a CMOS fabrication plant will be significantly cheaper compared to traditional III-V-based optical components.
First, Murray highlights that no CMOS production line can make photonic devices without adaptation. “And how many wafers starts are there for the whole industry? How much does a [CMOS] wafer cost?” he says.
“You would be hard pressed to find a lot of OEMs or systems integrators that talk about silicon photonics and what impact it is going to have,” says Lutkowitz. “To me, that has always said everything.”
Mark Lutkowitz, fibeReality LightCounting highlights heterogeneous integration as one promising avenue for silicon photonics. Heterogeneous integration involves bonding III-V and silicon wafers before processing the two.
This hybrid approach uses the III-V materials for the active components while benefitting from silicon’s larger (300 mm) wafer sizes and advanced manufacturing techniques.
Such an approach avoids the need to attach and align an external discrete laser. “If that can be integrated into a WDM design, then you have got the potential to realise the dream of silicon photonics,” says Murray. “But it’s not quite there yet.”
This poses a real challenge for silicon photonics: it will only achieve low cost if there are sufficient volumes, but without such volumes it will not achieve a cost differential
Murray says over 30 vendors now make modules at 40 gigabit and above: “There are numerous module types and more are being added all the time.” Then there is silicon photonics which has its own product pie split. This poses a real challenge for silicon photonics: it will only achieve low cost if there are sufficient volumes, but without such volumes it will not achieve a cost differential.
“Indium phosphide and other technologies will not step back and give silicon photonics a free ride, and are going to fight it,” says Kozlov. Nor is it just VCSELs that are made in high volumes.
LightCounting expects over 100 million indium phosphide transceivers to ship this year. Many of these transceivers use distributed feedback (DFB) lasers and many are at 10 gigabit and are inexpensive, says Kozlov.
For FTTx and GPON, bi-directional optical subassemblies (BOSAs) now cost $9, he says: “How much lower cost can you get?”
Reporting the optical component & module industry
LightCounting recently published its six-monthly optical market research covering telecom and datacom. Gazettabyte interviewed Vladimir Kozlov, CEO of LightCounting, about the findings.
When people forecast they always make a mistake on the timeline because they overestimate the impact of new technology in the short term and underestimate in the long term
Q: How would you summarise the state of the optical component and module industry?
VK: At a high level, the telecom market is flat, even hibernating, while datacom is exceeding our expectations. In datacom, it is not only 40 and 100 Gig but 10 Gig is growing faster than anticipated. Shipments of 10 Gigabit Ethernet (GbE) [modules] will exceed 1GbE this year.
The primary reason is data centre connectivity - the 'spine and leaf' switch architecture that requires a lot more connections between the racks and the aggregation switch - that is increasing demand. I suspect it is more than just data centres, however. I wouldn't be surprised if enterprises are adopting 10GbE because it is now inexpensive. Service providers offer Ethernet as an access line and use it for mobile backhaul.
Can you explain what is causing the flat telecom market?
Part of the telecom 'hibernation' story is the rapidly declining SONET/SDH market. The decline has been expected but in fact it had been growing up till as recently as two years ago. First, 40 Gigabit OC-768 declined and then the second nail in the coffin was the decline in 10 Gig sales: 10GbE is all SFP+ whereas 0C-192 SONET/SDH is still in the XFP form factor.
The steady dense WDM module market and the growth in wireless backhaul are compensating for the decline in SONET/SDH market as well as the sharp drop this year in FTTx transceiver and BOSA (bidirectional optical sub assembly) shipments, and there is a big shift from transceivers to BOSAs.
LightCounting highlights strong growth of 100G DWDM in 2013, with some 40,000 line card port shipments expected this year. Yet LightCounting is cautious about 100 Gig deployments. Why the caution?
We have to be cautious, given past history with 10 Gig and 40 Gig rollouts.
If you look at 10 Gig deployments, before the optical bubble (1999-2000) there was huge expected demand before the market returned to normality, supporting real traffic demand. Whatever 10 Gig was installed in 1999-2000 was more than enough till 2005. In 2006 and 2007 10 Gig picked up again, followed by 40 Gig which reached 20,000 ports in 2008. But then the financial crisis occurred and the 40 Gig story was interrupted in 2009, only picking up from 2010 to reach 70,000 ports this year.
So 40 Gig volumes are higher than 100 Gig but we haven't seen any 40 Gig in the metro. And now 100 Gig is messing up the 40G story.
The question in my mind is how much metro is a bottleneck today? There may be certain large cities which already require such deployments but equally there was so much fibre deployed in metropolitan areas back in the bubble. If fibre cost is not an issue, why go into 100 Gig? The operator will use fibre and 10 Gig to make more money.
CenturyLink recently announced its first customer purchasing 100 Gig connections - DigitalGlobe, a company specialising in high-definition mapping technology - which will use 100 Gig connectivity to transfer massive amounts of data between its data centers. This is still a special case, despite increasing number of data centers around the world.
There is no doubt that 100 Gig will be a must-have technology in the metro and even metro-access networks once 1GbE broadband access lines become ubiquitous and 10 Gig will be widely used in the access-aggregation layer. It is starting to happen.
So 100 Gigabit in the metro will happen; it is just a question of timing. Is it going to be two to three years or 10-15 years? When people forecast they always make a mistake on the timeline because they overestimate the impact of new technology in the short term and underestimate in the long term.
LightCounting highlights strong sales in 10 Gig and 40 Gig within the data centre but not at 100 Gig. Why?
If you look at the spine and leaf architecture, most of the connections are 10 Gig, broken out from 40 Gig optical modules. This will begin to change as native 40GbE ramps in the larger data centres.
If you go to super-spine that takes data from aggregation to the data centre's core switches, there 100GbE could be used and I'm sure some companies like Google are using 100GbE today. But the numbers are probably three orders of magnitude lower than in a spine and leaf layers. The demand for volume today for 100GbE is not that high, and it also relates to the high price of the modules.
Higher volumes reduce the price but then the complexity and size of the [100 Gig CFP] modules needs to be reduced as well. With 10 Gig, the major [cost reduction] milestone was the transition to a 10 Gig electrical interface. It has to happen with 100 Gig and there will be the transition to a 4x25Gbps electrical interface but it is a big transition. Again, forget about it happening in two-three years but rather a five- to 10-year time frame.
I suspect that one reason for Google offerings of 1Gbps FTTH services to a few communities in the U.S. is to find out what these new application are, by studying end-user demand
You also point out the failure of the IEEE working group to come up with a 100 GbE solution for the 500m-reach sweet spot. What will be the consequence of this?
The IEEE is talking about 400GbE standards now. Go back to 40GbE that was only approved some three years, the majority of the IEEE was against having 40GbE at all, the objective being to go to 100GbE and skip 40GbE altogether. At the last moment a couple of vendors pushed 40GbE. And look at 40GbE now, it is [deployed] all over the place: the industry is happy, suppliers are happy and customers are happy.
Again look at 40GbE which has a standard at 10km. If you look at what is being shipped today, only 10 percent of 40GBASE-LR4 modules are compliant with the standard. The rest of the volume is 2km parts - substandard devices that use Fabry-Perot instead of DFB (distributed feedback) lasers. The yields are higher and customers love them because they cost one tenth as much. The market has found its own solution.
The same thing could happen at 100 Gig. And then there is Cisco Systems with its own agenda. It has just announced a 40 Gig BiDi connection which is another example of what is possible.
What will LightCounting be watching in 2014?
One primary focus is what wireline revenues service providers will report, particularly additional revenues generated by FTTx services.
AT&T and Verizon reported very good results in Q3 [2013] and I'm wondering if this is the start of a longer trend as wireline revenues from FTTx pick up, it will give carriers more of an incentive to invest in supporting those services.
AT&T and Verizon customers are willing to pay a little more for faster connectivity today, but it really takes new applications to develop for end-user spending on bandwidth to jump to the next level. Some of these applications are probably emerging, but we do not know what these are yet. I suspect that one reason for Google offerings of 1Gbps FTTH services to a few communities in the U.S. is to find out what these new application are, by studying end-user demand.
A related issue is whether deployments of broadband services improve economic growth and by how much. The expectations are high but I would like to see more data on this in 2014.
China and the global PON market
China has become the world's biggest market for passive optical network (PON) technology even though deployments there have barely begun. That is because China, with approximately a quarter of a billion households, dwarfs all other markets. Yet according to market research firm Ovum, only 7% of Chinese homes were connected by year end 2011.
"In 2012, BOSAs [board-based PON optical sub-assemblies] will represent the majority versus optical transceivers for PON ONTs and ONUs"
Julie Kunstler, Ovum
Until recently Japan and South Korea were the dominant markets. And while PON deployments continue in these two markets, the rate of deployments has slowed as these optical access markets mature.
According to Ovum, slightly more than 4 million PON optical line terminals (OLTs) ports, located in the central office, were shipped in Asia Pacific in 2011, of which China accounted for the majority. Worldwide OLT shipments for the same period totaled close to 4.5 million. The fact that in China the ratio of OLT to optical network terminal (ONT), the end terminal at the home or building, deployed is relatively low highlights that in the Chinese market the significant growth in PON end terminals is still to come.
The strength of the Chinese market has helped local system vendors Huawei, ZTE and Fiberhome become leading global PON players, accounting for over 85% of the OLTs sold globally in 2011, says Julie Kunstler, principal analayst, optical components at Ovum. Moreover, around 60% of fibre-to-the-x deployments in Europe, Middle East and Africa were supplied by the Chinese vendors. The strongest non-Chinese vendor is Alcatel-Lucent.
Ovum says that the State Grid China Corporation, the largest electric utility company in China, has begun to deploy EPON for their smart grid trial deployments. PON is preferred to wireless technology because of its perceived ability to secure the data. This raises the prospect of two separate PON lines going to each home. But it remains to be seen, says Kunstler, whether this happens or whether the telcos and utilities share the access network.
"After China the next region that will have meaningful numbers is Eastern Europe, followed by South and Central America and we have already seen it in places like Russia,” says Kunstler. Indeed FTTx deployments in Eastern Europe already exceed those in Western Europe.
EPON and GPON
In China both Ethernet PON (EPON) and Gigabit PON (GPON) are being deployed. Ovum estimates that in 2011, 65% of equipment shipments were EPON while GPON represented 35% GPON in China.
China Telecom was the first of the large operators in China to deploy PON and began with EPON. Ovum is now seeing deployments of GPON and in the 3rd quarter of 2012, GPON OLT deployments have overtaken EPON.
China Mobile, not a landline operator, started deployments later and chose GPON. But these GPON deployments are on top of EPON, says Kunstler: "EPON is still heavily deployed by China Telecom, while China Mobile is doing GPON but it is a much smaller player." Moreover, Chinese PON vendors also supplying OLTs that support EPON and GPON, allowing local decisions to be made as to which PON technology is used.
One trend that is impacting the traditional PON optical transceiver market is the growing use of board-based PON optical sub-assemblies (BOSAs). Such PON optics dispenses with the traditional traditional optical module form factor in the interest of trimming costs.
“A number of the larger, established ODMs [original design manufacturers] have begun to ship BOSA-based PON CPEs,” says Kunstler. In 2012, BOSAs will represent the majority versus optical transceivers for PON ONTs/ONUs.” says Kunstler.
10 Gigabit PON
Ovum says that there has been very few deployments of next generation 10G EPON and XG-PON, the 10 Gigabit version of GPON.
"There have been small amounts of 10G [EPON] in China," says Kunstler. "We are talking hundreds or thousands, not the tens of thousands [of units]."
One reason for this is the relative high cost of 10 Gigabit PON which is still in its infancy. Another is the growing shift to deploy fibre-to-the-home (FTTh) versus fibre-to-the-building deployments in China. 10 Gigabit PON makes more sense in multi-dwelling units where the incoming signal is split between apartments. Moving to 10G EPON boosts the incoming bandwidth by 10x while XG-PON would increase the bandwidth by 4x. "The need for 10 Gig for multi-dwelling units is not as strong as originally thought," says Kunstler.
It is a chicken-and-egg issue with 10G PON, says Kunstler. The price of 10G optics would go down if there was more demand, and if there was more demand, the optical vendors would work on bringing down cost. "10G GPON will happen but will take longer," says Kunstler, with volumes starting to ramp from 2014.
However, Ovum thinks that a stronger market application for 10G PON will be for supporting wireless backhaul. The market research company is seeing early deployments of PON for wireless backhaul especially for small cell sites (e.g. picocells). Small cells are typically deployed in urban areas which is where FTTx is deployed. It is too early to know the market forecast for this application but PON will join the list of communications technologies supporting wireless backhaul.
Challenges
Despite the huge expected growth in deployments, driven by China, challenges remain for PON optical transceiver and chip vendors.
The margins on optics and PON silicon continue to be squeezed. ODMs using BOSAs are putting pricing pressure on PON transceiver costs while the vertical integration strategy of system vendors such as Huawei, which also develops some of its own components squeezes, out various independent players. Huawei has its own silicon arm called HiSilicon and its activities in PON has impacted the chip opportunity of the PON merchant suppliers.
"Depending upon who the customer is, depending upon the pricing, depending on the features and the functions, Huawei will make the decision whether they are using HiSilicon or whether they are using merchant silicon from an independent vendor, for example," says Kunstler.
There has been consolidation in the PON chip space as well as several new players. For example, Broadcom acquired Teknouvs and Broadlight while Atheros acquired Opulan and Atheros was then acquired by Qualcomm. Marvell acquired a very small start-up and is now competing with Atheros and Broadcom. Most recently, Realtek is rumored to have a very low-cost PON chip.