Nokia buys Elenion for its expertise and partnerships
Nokia will become the latest systems vendor to bolster its silicon photonics expertise with the acquisition of Elenion Technologies.
The deal for Elenion, a privately-held company, is expected to be completed this quarter, subject to regulatory approval. No fee has been disclosed.
“If you look at the vertically-integrated [systems] vendors, they captured the lion’s share of the optical coherent marketplace,” says Kyle Hollasch, director of optical networking product marketing at Nokia. “But the coherent marketplace is shifting to pluggables and it is shifting to more integration; we can’t afford to be left behind.”
Elenion Technologies
Elenion started in mid-2014, with a focus of using silicon as a platform for photonics. “We consider ourselves more of a semiconductor company than an optics company,” says Larry Schwerin, CEO of Elenion.
Elenion makes photonic engines and chipsets and is not an optical module company. “We then use the embedded ecosystem to offer up solutions,” says Schwerin. “That is how we approach the marketplace.”
The company has developed a process design kit (PDK) for photonics and has built a library of circuits that it uses for its designs and custom solutions for customers.
A PDK is a semiconductor industry concept that allows circuit designers to develop complex integrated circuits without worrying about the underlying transistor physics. Adhering to the PDK ensures the circuit design is manufacturable at a chip fabrication plant (fab).
But developing a PDK for optics is tricky. How the PDK is designed and developed must be carefully thought through, as has the manufacturing process, says Elenion.
“We got started on a process and developed a library,” says Larry Schwerin, CEO of Elenion. “And we modelled ourselves on the hyperscale innovation cycle, priding ourselves that we could get down to less than three years for new products to come out.”
The “embedded ecosystem” Elenion refers to involves close relationships with companies such as Jabil to benefit from semiconductor assembly test and packaging techniques. Other partnerships include Molex and webscale player, Alibaba.
Elenion initially focussed on coherent optics, providing its CSTAR coherent device that supports 100- and 200-gigabit transmissions to Jabil for a CFP2-DCO pluggable module. Other customers also use the design, mostly for CFP2-DCO modules.
The company has now developed a third-generation coherent design, dubbed CSTAR ZR, for 400ZR optics. The optical engine can operate up to 600 gigabits-per-second (Gbps), says Elenion.
Elenion’s work with the cloud arm of Alibaba covers 400-gigabit DR4 client-side optics as well as an 800-gigabit design.
Alibaba Cloud has said the joint technology development with Elenion and Hisense Broadband covers all the production stages: the design, packaging and testing of the silicon photonics chip followed by the design, packaging, assembly and testing of the resulting optical module.
Bringing optics in-house
With the acquisition of Elenion, Nokia becomes the latest systems vendors to buy a silicon photonics specialist.
Cisco Systems acquired Lightwire in 2012 that enabled it to launch the CPAK, a 100-gigabit optical module, a year ahead of its rivals. Cisco went on another silicon photonics shopping spree more recently with the acquisition of Luxtera in 2019, and it is the process of acquiring leading merchant coherent player, Acacia Communications.
In 2013 Huawei bought the Belgium silicon photonics start-up, Caliopa, while Mellanox Technologies acquired silicon photonics firm, Kotura, although subsequently, it disbanded its silicon photonics arm.
Ciena bought the silicon-photonics arm of Teraxion in 2016 and, in the same year, Juniper bought silicon photonics start-up, Aurrion Technologies.
Markets
Nokia highlights several markets – 5G, cloud and data centres – where optics is undergoing rapid change and where the system vendor’s designs will benefit from Elenion’s expertise.
“5G is a pretty obvious one; a significant portion of our optical business over the last two years has been mobile front-haul,” says Nokia’s Hollasch. “And that is only going to become more significant with 5G.”
Front-haul is optics-dependent and requires new pluggable form factors supporting lower data rates such as 25Gbps and 100Gbps. “This is the new frontier for coherent,” says Hollasch.
Nokia is not looking to be an optical module provider, at least for now. “That one we are treading cautiously,” says Hollasch. “We, ourselves, are quite a massive customer [of optics] which gives us some built-in scale straight away but our go-to-market [strategy] is still to be determined.”
Not being a module provider, adds Schwerin, means that Nokia doesn’t have to come out with modules to capitalise on what Elenion has been doing.
Nokia says both silicon photonics and indium phosphide will play a role for its coherent optical designs. Nokia also has its own coherent digital signal processors (DSPs).
“There is an increasingly widening application space for silicon photonics,” says Hollasch. “Initially, silicon photonics was looked at for the data centre and then strictly for metro [networks]; I don’t think that is the case anymore.”
Why sell?
Schwerin says the company was pragmatic when it came to being sold. Elenion wasn’t looking to be acquired and the idea of a deal came from Nokia. But once the dialogue started, the deal took shape.
“The industry is in a tumultuous state and from a standpoint of scenario planning, there are multiple dynamics afoot,” says Schwerin.
As the company has grown and started working with larger players including webscales, their requirements have become more demanding.
“As you get more into bigs, they require big,” says Schwerin. “They want supply assurance, and network indemnification clauses come into play.” The need to innovate is also constant and that means continual investment.
“When you weigh it all up, this deal makes sense,” he says.
Schwerin laughs when asked what he plans to do next: “I know what my wife wants me to do.
“I will be going with this organisation for a short while at least,” he says. “You have to make sure things go well in the absorption process involving big companies and little companies.”
Elenion's coherent and fibre-to-the-server plans
- Elenion’s coherent chip - an integrated modulator-receiver assembly - is now generally available.
- The company has a silicon photonics design library that includes over 1,000 elements.
- Elenion is also developing an optical engine for client-side interfaces.
Elenion Technologies has given an update on its activities and strategy after announcing itself eight months ago. The silicon photonics-based specialist is backed by private equity firm, Marlin Equity Partners, which also owns systems vendor, Coriant. Elenion had already been active for two and a half years and shipping product when it emerged from its state of secrecy last December.
Larry SchwerinElenion has since announced it is selling its telecom product, a coherent transceiver PIC, to Coriant and now other companies.
It has also progressed its optical engine design for the data centre that will soon be a product. Elenion has been working with Ethernet switch chip maker, Cavium, and data centre player, Microsoft, as part of its datacom work.
“We have moved forward,” says Larry Schwerin, the CEO of Elenion.
Coherent PIC
Elenion’s integrated modulator-receiver assembly is being used by Coriant for two CFP2 Analogue Coherent Optics (CFP2-ACO) modules as part of its Groove G30 platform.
The first is a short-reach CFP2-ACO for point-to-point 200-gigabit links that has a reach of at least 80km. The second is a high-performance CFP2-ACO that has a reach of up to 4,000km at 100 gigabits and 650km at 200 gigabits.
Schwerin says the company is now selling the coherent PIC to “a lot of people”. In addition to the CFP2-ACO, there is the Digital Coherent Optics (DCO) pluggable market where the PIC and the coherent digital signal processor (DSP) are integrated within the module. Examples include the CFP-DCO and the smaller CFP2-DCO which is now being designed into new systems. ADVA Optical Networking is using the CFP2-DCO for its Teraflex, as is its acquisition target MRV with its 200-gigabit coherent muxponder. Infinera’s latest XTM II platforms also use the CFP2-DCO.
We have got a library that has well over 1,000 elements
Using silicon photonics benefits the cost and performance of the coherent design, says Schwerin. The cost benefit is a result of optical integration. “You can look at it as a highly simplified supply chain,” says Schwerin. Coupling the electronics close to the optics also optimises overall performance.
Elenion is also targeting the line-card market for its coherent PIC. “This is one of the reasons why I wanted to stay out of the pluggable business,” says Schwerin. “There are a lot more customers out there if you stay out of pluggables because now you are selling an [optical] engine.”
The company is also developing a coherent PIC design that will support higher data rates such as 400- and 600-gigabit per lambda. “Without being too specific because we do remain stealthy, we have plans to support these applications,” says Schwerin.
Schwerin stresses that the real strength of the company is its design library used to develop its silicon photonics circuits. Elenion emerged out of a silicon photonics design-for-service company. “We have got a library that has well over 1,000 elements,” he says. Elenion says it can address custom design requests of companies using its design library.
Datacom
Elenion announced at the OFC show held in Los Angeles in March that it is working with Jabil AOC Technologies, a subsidiary of the manufacturing firm, Jabil Circuits. Elenion chose the contract manufacturer due to its ability to address both line-card and pluggable designs, the markets for its optical engines.
The two firms have also been working at the chip level on such issues as fibre attach, coupling the laser and adding the associated electronics. “We are trying to make the interface as elegant and streamlined as possible,” says Schwerin. “We have got initiatives underway so that you don't need these complex arrangements.”
Schwerin highlights the disparity between the unit volumes needed for the telecom and datacom markets. According to forecasts from market research firms, the overall coherent market is expected to grow to 800,000 and 1 million units a year by 2020. In contrast, the interfaces used inside one large-scale data centre can be up to 2 million. “To achieve rapid manufacturing and yield, you have got to simplify the process,” he says.
This is what Elenion is tackling. If 1,000 die can be made on a single silicon wafer, and knowing the interface volumes required and the yields, the total number of wafer runs can be determined. And it is the overall time taken from starting a wafer to the finished transceiver PIC output that Elenion is looking to shorten, says the CEO.
We ran that demo from 7 AM to 2 AM every day of the show
At OFC, Elenion hired a hotel suite near the convention centre to demonstrate its technologies to interested companies. One demonstration used its 25Gbps optical engine directly mounted on a Cavium QLogic network interface card (NIC) connecting a server to a high-capacity Cavium Xpliant Ethernet switch chip. The demo showed how 16 NICs could be connected to the switch chip for a total capacity of 400 gigabits. “No more direct-attached cables or active optical cables, literally fibre-to-the-server,” says Schwerin. “We ran that demo from 7 AM to 2 AM every day of the show.”
Elenion’s on-board optics design was based on the emerging Consortium of On-Board Optics (COBO) standard. “The Microsoft folks, we work with them closely, so obviously what we are doing follows their intent,” says Schwerin.
The optical engine will also support 56Gbps links when used with four-level pulse-amplitude modulation (PAM-4) and the company is even eyeing 100Gbps interfaces. For now, Elenion’s datacom optical engine remains a technical platform but a product will soon follow.
The company’s datacom work is also benefiting its telecom designs. “The platform technology that we use for datacom has now found its way into the coherent programme, especially around the packaging,” says Schwerin.
* The article was changed on July 25th to mention that Elenion's PIC is being used in two Coriant CFP-ACOs.
Elenion unveiled as a silicon photonics PIC company
- Elenion Technologies is making silicon photonics-based photonic integrated circuits
- The company has been active for two and a half years and has products already deployed
A privately-owned silicon photonics company that is already shipping products has dropped its state of secrecy to announce itself. Elenion Technologies is owned by Marlin Equity Partners, the investment firm that also owns systems vendor, Coriant.
“We are in the [optical] engine business,” says Larry Schwerin, CEO of Elenion Technologies. “We are developing a platform leveraging silicon photonics but we have other capabilities.”
Larry SchwerinElenion’s expertise includes indium phosphide, radio frequency integrated circuits (RFICs), packaging, and driver and control electronics circuit design. The RFIC expertise suggests the company also plans to address the mobility market.
The company will detail its first products prior to the OFC show next March.
Telecom and Datacom
Elenion’s initial focus is the telecom market where its products are already deployed, with Coriant being a likely early customer. “We are also very active in datacom which has a different set of requirements,” says Schwerin.
Telecom is the harder 'trade space' of the two segments, says Schwerin. Telecom designs have to be outside-plant hardened and Telcordia-compliant. “Proving that world is a good place to get started and focussed,” he says.
In contrast, the datacom market has shorter equipment life cycles with optical designs deployed in a more controlled environment. Datacom customers also don't just want pluggables. “They want on-board solutions, parallel solutions, and they request a cost of $1-per-gigabit,” says Schwerin.
The company is targeting optical module makers, systems vendors and the cloud operators
The challenges facing the large-scale data centre operators are multifold: how they drive more bandwidth to the server, how they make the server more effective, how they scale their switching fabric, how they better use their fibre infrastructure and how they meet their optics cost targets.
Elenion says it has detailed data on the construction and costs of data centres and how they will scale. "You need to have that expertise in order to design the platform that they are trying to do today and going forward," says Schwerin. The company is working to deliver an optical engine that will help the data centre operators address the issues of distance, power consumption, space and signal integrity, and which will meet their $1-per-gigabit cost target.
We have developed a set of tools and a set of expertise that lets us design very complex integrated optoelectronic systems at the chip scale
Expertise
Elenion is limited in what it can say until its first products are unveiled. What is clear is that the silicon photonics company has a photonic integrated circuit (PIC) capability that it is using for on-board optics and for pluggable designs such as the CFP2.
Michael Hochberg
“We have developed a set of tools and a set of expertise that lets us design very complex integrated opto-electronic systems at the chip scale,” says Michael Hochberg, CTO of Elenion.
According to Hochberg, Elenion is pulling complexity out of other systems and putting it into silicon. The value of such PICs is that it avoids having to deploy discrete optics such as lenses. And silicon is the ideal platform for scaling complexity, says Hochberg: “All the areas that we have developed expertise are things that we believe will need to be co-designed with the PIC.”
In the electronics industry, you tape things out and you expect them to work. That is what we are replicating here.
The company says it is building up a capability that has long existed in the semiconductor industry. "In the electronics industry, you tape things out and you expect them to work," says Hochberg. "That is what we are replicating here."
For datacom applications, Schwerin says that in addition to the PIC’s function, the company has developed a wafer-scale approach to packaging. Here, devices are packaged while still on the wafer rather than having to dice the wafer first. “You have got to get into the volumes of millions, not tens or hundreds of thousands,” says Schwerin. “That forces you into that space.”
The company is targeting optical module makers, systems vendors and the cloud operators as customers.
Origins
Schwerin was formerly the CEO of Capella Intelligent Subsystems, a developer of wavelength-selective switch technology, that was sold to Alcatel-Lucent (now Nokia) in 2013.
Hochberg was a director at the Optoelectronic Systems in Silicon (OpSIS) foundry and was a co-founder of silicon photonics company, Luxtera.
The two first met at a conference when Hochberg was running Silicon Lightwave Services (SLS), a silicon photonics design-for-service company. Schwerin became CEO of SLS and the company was bought by Merlin two and a half years ago to become Elenion. The name Elenion means starlight, a nod to J.R.R. Tolkien’s novels.
“We are now introducing ourselves as we are getting enough requests that it seemed the appropriate time,” says Schwerin.
Optical industry restructuring: The analysts' view
The view that the optical industry is due a shake-up has been aired periodically over the last decade. Yet the industry's structure has remained intact. Now, with the depressed state of the telecom industry, the spectre of impending restructuring is again being raised.
In Part 2, Gazettabyte asked several market research analysts - Heavy Reading's Sterling Perrin, Ovum's Daryl Inniss and Dell'Oro's Jimmy Yu - for their views.
Part II: The analysts' view
"It is just a very slow, grinding process of adjustment; I am not sure that the next five years will be any different to what we've seen"
Sterling Perrin, Heavy Reading
Larry Schwerin, CEO of ROADM subsystem player Capella Intelligent Subsystems, believes optical industry restructuring is inevitable. Optical networking analysts largely agree with Schwerin's analysis. Where they differ is that the analysts say change is already evident and that restructuring will be gradual.
"The industry has not been in good shape for many years," says Sterling Perrin, senior analyst at Heavy Reading. "The operators are the ones with the power [in the supply chain] and they seem to be doing decently but it is not a good situation for the systems players and especially for the component vendors."
Daryl Inniss, practice leader for components at Ovum, highlights the changes taking place at the optical component layer. "There is no one dominate [optical component] supplier driving the industry that you would say: This is undeniably the industry leader," says Inniss.
A typical rule of thumb for an industry in that you need the top three [firms] to own between two thirds and 80 percent of the market, says Inniss: "These are real market leaders that drive the industry; everyone else is a specialist with a niche focus."
But the absence of such dominant players should not be equated with a lack of change or that component companies don't recognise the need to adapt.
"Finisar looks more like an industry leader than we have had before, and its behaviour is that of market leader," says Inniss. Finisar is building an integrated company to become a one-stop-shop supplier, he says, as is the newly merged Oclaro-Opnext which is taking similar steps to be a vertically integrated company. Finisar acquired Israeli optical amplifier specialist RED-C Optical Networks in July 2012.
Capella's Schwerin also wonders about the long term prospects of some of the smaller system vendors. Chinese vendors Huawei and ZTE now account for 30 percent of the market, while Alcatel-Lucent is the only other major vendor with double-digit share.
The rest of the market is split among numerous optical vendors. "If you think about that, if you have 5 percent or less [optical networking] market share, that really is not a sustainable business given the [companies'] overhead expenses," says Schwerin.
However Jimmy Yu, vice president of optical transport research at Dell’Oro Group, believes there is a role for generalist and specialist systems suppliers, and that market share is not the only indicator of a company's economic health. “You have a few vendors that are healthy and have a good share of the market,” he says. “That said, when I look at some of these [smaller] vendors, I say they are better off.”
Yu cites the likes of ADVA Optical Networking and Transmode, both small players with less than 3 percent market share but they are some of the most profitable system companies with gross margins typically above 40 percent. “Do I think they are going to be around? Yes. They are both healthy and investing as needed.”
Innovation
Equipment makers are also acquiring specialist component players. Cisco Systems acquired coherent receiver specialist CoreOptics in 2010 and more recently silicon photonics player, Lightwire. Meanwhile Huawei acquired photonic integration specialist, CIP Technologies in January 2012. "This is to acquire strategic technologies, not for revenues but to differentiate and reduce the cost of their products," says Perrin.
"There is a problem with the rate of innovation coming from the component vendors," adds Inniss. This is not a failing of the component vendors as innovation has to come from the system vendors: a device will only be embraced by equipment vendors if it is needed and available in time.
Inniss also highlights the changing nature of the market where optical networking and the carriers are just one part. This includes enterprises, cloud computing and the growing importance of content service providers such as Google, Facebook and Amazon who buy components and gear. "It is a much bigger picture than just looking at optical networking," says Inniss.
"There is no one dominate [optical component] supplier driving the industry that you would say: This is undeniably the industry leader"
Daryl Inniss, Ovum
Huawei is one system vendor targeting these broader markets, from components to switches, from consumer to the data centre core. Huawei has transformed itself from a follower to a leader in certain areas, while fellow Chinese vendor ZTE is also getting stronger and gaining market share.
Moreover, a consequence of these leading system vendors is that it will fuel the emergence of Chinese optical component players. At present the Chinese optical component players are followers but Inniss expects this to change over the next 3-5 years, as it has at the system level.
Perrin also notes Huawei's huge emphasis on the enterprise and IT markets but highlights several challenges.
The content service providers may be a market but it is not as big an opportunity as traditional telecom. "It is also tricky for the systems providers to navigate as you really can't build all your product line to fit Google's specs and still expect to sell to a BT or an AT&T," says Perrin. That said, systems companies have to go after every opportunity they can because telecom has slowed globally so significantly, he says.
Inniss expects the big optical component players to start to distance themselves, although this does not mean their figures will improve significantly.
"This market is what it is - they [component players] will continue to have 35 percent gross margins and that is the ceiling," says Inniss. But if players want to improve their margins, they will have to invest and grow their presence in markets outside of telecom.
"I like the idea of a Cisco or a Huawei acquiring technology to use internally as a way to differentiate and innovate, and we are going to see more of that," says Perrin.
Thus the supply chain is changing, say the analysts, albeit in a gradual way; not the radical change that Capella's Schwerin suggests is coming.
"It is just a very slow, grinding process of adjustment; I am not sure that the next five years will be any different to what we've seen," says Perrin. "I just don't see why there is some catalyst that suggests it is going to be different to the past two years."
This is based on an article that appears in the Optical Connections magazine for ECOC 2012
Has the restructuring of the optical industry already started?
The view that consolidation in the optical networking industry is needed is not new. For a decade, ever since the end of the optical boom in 2001, consolidation has been called for and has been expected. And while the many optical startups funded then have long exited or been acquired, the optical industry continues to support numerous optical networking and component generalist and specialists.
Given the state of the telecom market, is a more fundamental industry restructuring finally on its way?
"The business model of the communication sector needs to change, and change in a relatively short order"
Larry Schwerin, CEO of Capella Intelligent Subsystems
Larry Schwerin, CEO of Capella Intelligent Subsystems, believes change is inevitable. He argues that the industry supply chain will change, especially as firms become more vertically integrated.
"This is not to say that the market and demand are not there," says Schwerin, but the industry is stuck with a decade-old structure yet the market has changed.
Optical market dynamics
Schwerin starts his argument by highlighting certain fundamental drivers. IP traffic continues to grow at over 30% a year, while the nature of the traffic is changing, especially with cloud computing and as users generate more digital media content.
“The current rate of bandwidth growth coupled with the rate of CapEx spend, the gap is widening and the revenue-per-bit is dropping,” he says. “Some argue that bandwidth growth will slow down as operators charge [users] more, but to date this hasn't been seen.”
These trends are welcome for the optical companies, says Schwerin, as operators adopt lower layer, optical switching as a cheaper alternative to IP routing. “The number of [wavelength-selective] switches per node is growing quite dramatically," he says. "We are now seeing deployments with, on average, 6-8 switches per node and people are projecting as many as 20 as people start deploying colourless, directionless, contentionless-based switching."
But such demand is coupled with fierce competition among numerous players at each layer of the optical industry's supply chain.
"Some 80% of the optics used by system vendors are bought. How do you differentiate on features above and beyond what you are buying?"
Supply chain
The annual global operator market for wireless and wireline equipment is valued at US $250bn, says Schwerin, using market research and financial analyst firms' data.
The global optical networking equipment market is $15bn. The Chinese vendors Huawei and ZTE now account for 30% of the market, while Alcatel-Lucent is the only other major vendor with double-digit share. The rest of the market is split among numerous optical vendors. "If you think about that, if you have 5% or less [optical networking] market share, that really is not a sustainable business given the [companies'] overhead expenses," says Schwerin.
The global optical component market is valued at $5bn. It is likely larger, anything up to $8bn, argues Schwerin, because of the Chinese optical companies supplying Huawei and ZTE.
"You have a $5-8bn market selling products into $15bn, and then the $15bn is trying to repurpose that material and resell it to the carriers - is that really what is going on?" says Schwerin. To this vendor hierarchy is added contract manufacturers, with different players serving the component and the system vendors.
The slim profits operators are making on their services is forcing them to place significant pricing pressure on the system companies that already face fierce competition. Meanwhile, the optical component and contract manufacturers are also trying to make money in this environment.
Looking at gross margin data from Morgan Stanley, Schwerin says that the system vendors' figures range from 35% for the low end to 40% at the high end. "What the figures highlight is a lack of differentiation," he says. "And, in part, it is because they are buying all the same technology."
Schwerin says that some 80% of the optics used by system vendors are bought. "How do you differentiate on features above and beyond what you are buying?"
The optical components vendors' gross margins of a year ago were 30%. More recent data shows these figures are down, with the only segment showing a rise being optical sub-systems.
What next?
Schwerin says one way to improve the health of the industry is greater vertical integration. How this will be done - which players get consumed and how - will only become clear in the next 2-3 years but he is confident it will happen. "There are just too many layers of the ecosystem and it is just too fragmented," he says.
Operator mergers and slower spending put pressure on vendors at each layer of the supply chain, inducing revenue stalls. "These swings seems to be more and more violent," says Schwerin. "It is difficult for companies to maintain themselves in these cycles, let alone innovate."
Schwerin highlights Cisco System's acquisition of silicon photonics start-up, Lightwire, earlier this year, as an example of a system vendor embracing vertical integration while also acquiring innovation. Another example is Huawei's acquisition of optical integration specialist, CIP Technologies.
"The business model of the communication sector needs to change, and change in a relatively short order," says Schwerin, who believes it has already started. He cites the merger between the two large optical component vendors, Oclaro and Opnext, and expects a similar deal among the system vendors: "One of those 5 percenters will be absorbed."
As the market further consolidates, and as system companies drive fundamental technologies, the components' market will start to shrink. "It is then like a chain reaction; it forces itself," he says.
Schwerin's take is that rather than continue with the existing optical component and contract manufacturing model, what is more likely is that what will be supplied will be basic optical components. Differentiation will be driven by the system vendors.