A career in technology market analysis
John Lively reflects on a 30-year career.
It was a typical workday in 1989, sitting through a meeting announcing the restructuring of Corning’s planar coupler business.
The speaker’s final words were, “Lively, you’ll be doing forecasting.” It changed my life and set my career path for the next 30-plus years.
No one grows up with a desire to be a market analyst. Indeed, I didn’t ask for the job. What made it possible was an IBM PC and LOTUS 1-2-3 in my marine biology lab in the early 1980s (a story for another time).
After a stop at MIT for an MBA, this led to a job in Corning’s fledgling PC support team in 1985. Then it was Corning’s optical fibre business cost-modelling fibre-to-the-home networks on a PC, working with Bellcore and General Instrument engineers. From there, it was to forecast market demand for planar couplers in the FTTH market.
In the following decade, I had various market forecasting roles within Corning’s optical fibre and photonics businesses.
Each time I tried to put forecasting behind me by taking a marketing or product management job, management said they needed me to return to forecasting due to some crisis or another (thank you, Bernie Ebbers).
In 1999, I had an epiphany. If Corning thinks I’m better at forecasting than anything else, perhaps I should become a professional forecaster in a company whose product is forecasts.
Just then, through fate or coincidence, I received a call from fellow MIT alum Dana Cooperson who said her firm, RHK, was desperate for people and did I know anyone who might be interested?
For the uninitiated, that’s code for ‘would you be interested in joining us?’.
I joined just in time to enjoy the remaining months of the boom, followed by a bust in 2001. But all the while learning to be a market analyst in a new context. While at Corning, I had been both a producer and procurer of market research. At RHK, I was strictly a producer.
More importantly, there was a direct link between my words and spreadsheets and money coming in. It was exhilarating.
Working remotely
Thanks to the newly deployed cable modem/ HFC technology that I had been cost-modelling a decade earlier, I was working from home.
I have worked from home ever since, and I can say that remote working does work well for some people and jobs.
Some lessons I’ve learned include:
- Working from home works best if the entire firm, not just a few people, are doing it.
- Home working doesn’t mean you can’t travel, pandemics notwithstanding.
- Home workers need to have clear deliverables that they can be judged against. Give them responsibility for something tangible, with an unambiguous deadline.
- Requiring time-tracking sheets or online monitoring of home workers is insulting and demotivating.
- Companies must support home workers by investing in quality internet services and conferencing software/ equipment on both sides of the link
Required skills
By joining RHK, I had moved from a Fortune 500 company to one of 100 employees. Over the next two decades, I would move between large and small companies. I prefer small companies because it’s clear who contributes to their success and who doesn’t. Poor performers have nowhere to hide in a company of six people.
After more than 30 years in the market research arena, I have views on the role of a market analyst and the talents necessary to be a good one.
The goal of market analysis is to find information, analyse it, draw conclusions, then package and communicate it.
Doing market research is like assembling a jigsaw puzzle, from which several pieces are missing. Or, like a chef who must create a healthy, enjoyable meal from an assortment of good and bad raw ingredients.
A technology market analyst should be intellectually curious, have a solid background in sciences and technology, and have broad industry knowledge, i.e., understand the jargon, the tech, and the companies.
The analyst also needs to write concisely and quickly, is fluent in Excel, PowerPoint, and Word, is a great communicator and is approachable, likeable, and outgoing.
Of course, finding all the requisite skills in one person is rare, and larger companies commonly divide duties into specialities like data collection, analysis, and communication.
In small companies, this may not be overt but happens to a degree just the same.
Most importantly, a market analyst must be comfortable with uncertainty.
One never has all the pieces, and you must be OK filling in missing data points via extrapolation, intuition, historical parallels, or other means. And be comfortable admitting your mistakes and adjusting your findings when new data surfaces.
I believe this is why those with a scientific background are better suited to market research than engineers. Scientists are taught scepticism and revision as a way of life, while engineers seek the certainty of the ‘right’ answer.
Periods of note
Throughout my career, I’ve lived through interesting times.
Starting in 1985, it was the introduction of the first PCs into Corning and establishing their first email system, electronic newsletter, word processing, and expert-learning systems.
Then, in the mid-1990s working in the early days of amplified DWDM systems and when the EDFA business doubled its output yearly.
Then came the Internet bubble and optical industry boom/bust of 1999-2001, when dozens of companies were founded by a couple of PhDs with a PowerPoint presentation. At one point in 2000, my optical components practice at RHK had over 100 subscribing companies.
It was weird living through an episode that we knew would someday be written about, like the Dutch tulip mania of 1634.
More recently, and I believe, with a more positive outcome, it is/ has been fascinating to watch companies like Alphabet, Amazon, and Meta utilise a globally connected internet to become the first truly global communications, media, and retail companies.
Moreover, these companies transcend national, cultural, and language boundaries, connecting a billion or more users. And in the process, inventing hyperscale data centres, which in turn allow hundreds and thousands of other companies to ‘cloudify’ as well, extending their global reach.
Of all the innovations and changes taking place today, this is one I will continue to follow with wonder and amazement.
The promise of these companies is so great that I’m hopeful they will become beacons of positive change around the world in the 21st century.
Innovation has been breathtaking in optics. For example, coherent transport, the far-out science stuff of technical talks at my first OFC in 1988, is in commercial use.
We blithely speak of optical transceivers capable of Terabit-per-second speeds without stopping to think how amazing it is that anything, anywhere, could be made to turn off and on again, one TRILLION times a second!
It simply defies human understanding, and yet we make it easy.
A view of now
Today, it’s easy to be convinced that things are falling apart, between Russia’s war against Ukraine, COVID, economic turmoil, screwed-up supply chains, and populist politicians.
But I take solace that I’ve seen things like this before and lived through them. As a child, scenes of the Vietnam war were on the news every evening. But finally, there was peace in Vietnam.
In the 1970s, we had an oil embargo and sky-high gas prices. It also ended.
In the 1980s, inflation ran hot, pushing my student loan interest rate to 13%. But I paid it off, and rates came down.
AIDS struck fear and stoked prejudice for years, claiming my aunt and uncle before scientists uncovered its secrets and developed effective treatments.
So it will be with COVID. History shows that humans tire of strife and disease and will work to conquer our worst problems eventually.
Surprises
Two things come to mind regarding industry surprises over the last 30 years.
One is that optical technology keeps advancing. Despite how challenging each new generation seems, bit by bit and idea by idea, the industry collectively comes up with a solution, and the subsequent speed hike is commercialised.
Another is how people find ways to use it no matter how much bandwidth is created. RHK founder, John Ryan, was fond of telling us, “Bandwidth is like cupboard space; it’s never left empty for long.”
Another surprising thing is how long the interpersonal bonds formed at RHK have lasted.
Though it was just a flash in time, many of those who were there in 2000 remain connected as friends and colleagues more than 20 years later.
Several such alumni work at LightCounting now.
Climate Change
While doing all this, looking backwards and reflecting on change, I couldn’t help dwelling on another major problem we face today: climate change.
Forestalling climate change is the one thing I believe where humans are failing. But unfortunately, the causes are so rooted in our global socio-economic systems that citizens and governments are not capable of inflicting the necessary sacrifices on themselves.
I fear the worst-case scenarios are coming soon, with shifting temperature zones and rising seas. In response, many people, plants, and animals will migrate, following favourable conditions north or south or inland as the case may be, significantly increasing competition for resources of all kinds.
I also fear authoritarian governments may prove more effective at providing protection for some, and avoiding utter chaos, than our precious but fragile democracies.
A role for tech giants
I think the internet and companies with global reach can play a role in combatting the worst impacts of climate change.
Some of the hyperscalers, telecom operators, and equipment companies have been leaders in reducing carbon emissions.
I hope the interconnectedness and massive computing power of companies like Meta and Alphabet can be used to solve these large-scale problems.
My last thought is the realisation that when I eventually ease into retirement and cut back on travel, I may never get a chance to personally thank all the friends and colleagues I have made along the way.
People who have assisted my career, believed in me, educated me, and made me think differently, smile, and laugh.
So, just in case, I’ll say it here – thank you one and all – you made a difference to me.
It’s also been fun.
Optical networking market in rude health
Quarterly market revenues, global optical networking (1Q 2011). Source: Ovum
Despite recent falls in optical equipment makers’ stock, the optical networking market remains in good health with analysts predicting 6-7% growth in 2011.
For Andrew Schmitt, directing analyst for optical at Infonetics Research, unfulfilled expectations are nothing new. Optical networking is a market of single-digit yearly growth yet in the last year certain market segments have grown above average: spending on ROADM-based wavelength division multiplexing (WDM) optical network equipment, for example, has grown 20% since the first quarter of 2010.
“Every few years people get this expectation that there is going to be this hockey stick [growth] and it is not,” says Schmitt. “There has been a lot of Wall Street money moving into this sector in the latter part of 2010 and first part of this year and they have just had their expectations reset, but operationally the industry is very healthy.”
“Nothing in this business changes quickly but the pace of change is starting to accelerate”
Andrew Schmitt, Infonetics Research
But Schmitt acknowledges that there is industry concern about the market outlook. “There have been lots of client calls in the first half of the year wanting to talk numbers,” says Schmitt. “When the market is growing rapidly there is no need for such calls but when it is uncertain, customers put more time into understanding what is going on.”
Both Infonetics and market research firm Ovum say the optical networking market grew 7% globally in the last year (2Q10 to 1Q11).
Ovum says the market reached US $3.5bn in the first quarter of 2011 and it expects 6% growth this year. “Most of the growth will come from North America—general recovery, stimulus-related spending, and LTE (Long Term Evolution)-inspired spending; and from South and Central America mostly mobile and fixed broadband-related,” says Dana Cooperson, network infrastructure practice leader at Ovum.
Ovum also notes that optical networking annualised spending for the last four quarters (2Q10-1Q11) finally went into the black with 1% growth, to reach $14.6bn. Annualised share figures are a strong indicator of longer-term market trends, says Ovum.
Market growth
Factors accounting for the growth include optical equipment demand for mobile and broadband backhaul. Carriers are also embarking on a multi-year optical upgrade to 40 and 100 Gigabit transmission over Optical Transport Network (OTN) and ROADM-based networks. Infonetics notes that ROADM spending in particular set a new high in the first quarter, rising 4% sequentially.
Ovum expects overall growth to come from metro and backbone WDM markets and from LTE. “For metro it is a combination of new builds, as DWDM continues to take over the metro core from SONET/SDH, and expansions of ROADM and 40 Gigabit,” says Cooperson. “For backbone it is a combination of retrofits for 40 and 100 Gigabit and overbuilds with 40 and 100 Gigabit coherent-optimised systems.”
Many operators are also looking at OTN switching and how it can help with network efficiency and manageability, she says, while mobile backhaul continues to be a hot spot as well at the access end of the network.
The Americas are the regions accounting for market growth whereas in Asia-Pacific and Europe, Middle East and Africa the spending remains flat.
“We’re not as bullish on Europe as I’ve heard some others are,” says Cooperson. “We expected China to slow down as capital intensities in the 34-35% seen in 2008 and 2009 were unsustainable. We saw the cooling down a bit earlier in 2010 than we had expected, but it did cool down and will continue to.”
Ovum expects Asia-Pacific as a whole to be moribund. But at least the pullbacks in China will be countered by slow growth in Japan and a big upsurge in India after a huge decline last year due to delayed 3G-related builds among other issues.
Outlook
Ovum is optimistic about the optical networking market due to continued competitive pressures and traffic growth. “We don’t think traffic growth can just continue without attention to the underlying issues related to revenue pressure, regardless of competitive pressures,” says Cooperson. “But newer optical and packet systems offer significant improvements over the old in terms of power efficiency, manageability, and of course 40 and 100 Gigabit coherent and ROADM features.”
“Most of the growth will come from North America"
Dana Cooperson, Ovum.
Many networks worldwide are also due for a core infrastructure update to benefit capacity and efficiency while many other operators are upgrading their access networks for mobile backhaul and enterprise Ethernet services.
Schmitt stresses that while it is right to talk about a 'core reboot', there are all sorts of operators that make up the market: the established carriers, those focussed on Layer 2 and Layer 3 transport, dark fibre companies and cable companies.
“Everyone has a different business so there is not a whole lot of group-think in this industry,” says Schmitt. “So when you talk about a transition to 40 and 100 Gigabit, some carriers will make that transition earlier than others because the nature of their business demands it.”
However, there are developments in equipment costs that are leading to change. “Once you get out to 2013-14, 100 Gigabit [transport] looks really good relative to 40 Gigabit and tunable XFPs at 10 Gigabit look really, really good,” says Schmitt, who believes these are going to be two dominating technologies. “People are going to use 100 Gigabit and when they can afford to throw more 10 Gigabit at the [capacity] problem, in shorter metro and regional spans, they will use tunable XFPs,” he says. “That is a whole new level in terms of driving down cost at 10 Gigabit that people haven’t factored in yet.”
Pacier change
The move to 100 Gigabit will not lead to increased spending, stresses Schmitt. Rather its significance is as a ‘mix shift’: The adoption of 100 Gigabit will shift spending from older systems to newer ones so that the technology is interesting in terms of market share shift rather than by growing overall revenues.
That said, there are areas of optical spending where capital expenditure (capex) is growing faster than the single-digit trend. These include certain competitive telco providers and dark fibre providers like AboveNet, TimeWarner Telecom and Colt. “You look at their capex year-over-year and it is increasing in some cases more over 20% a year,” says Schmitt.
He also notes that while the likes of Google, Yahoo, Microsoft and Apple do not spend on optical equipment as much as established operators such as Verizon or AT&T, their growth rate is higher. “There are sectors of the market that are growing quickly, and competition that are positioned to service those sectors successfully are going to see above-trend growth,” says Schmitt.
He highlights three areas of innovations - ‘big vectors’- that are going to change the business.
One is optical transport's move away from simple on-off keying signalling that opens up all kinds of innovation. Another is the shift in the players buying optical equipment. “A lot more of the R&D is driven by the AboveNets, Time Warners, Comcasts and the Googles and less by the old time PTTs,” says Schmitt. “That is going to change the way R&D is done.”
The third is photonic integration which Schmitt equates to the very early state of the electronics business. While Infinera has done some interesting things with integration, its latest 500 Gigabit PIC (photonic integrated circuit) is a big leap in density, he says: “It will be interesting if that sort of technology crosses over into other applications such as short- and intermediate-reach applications.”
“Nothing in this business changes quickly but the pace of change is starting to accelerate,” says Schmitt. “These three things, when you throw them together in a pot, are going to result in some unpredictable outcomes.”
Cisco Systems' coherent power move
Cisco Systems announced its intent to acquire the optical transmission specialist CoreOptics back in May. CoreOptics has digital signal processing expertise used to enhance high-speed long-haul dense wavelength division multiplexing (DWDM) optical transmission. Cisco’s acquisition values the German company at US $99m.
"Let me be clear, we don’t believe 100Gbps serial will dominate the market for a long time, or 40Gbps for that matter"
Mark Lutkowitz, Telecom Pragmatics
“It has become clear that Cisco, with a few exceptions, has cornered the coherent market for 40 Gig and 100 Gig,” says Mark Lutkowitz, principal at market research firm, Telecom Pragmatics, which has published a report on Cisco's move.
Prior to Cisco’s move, several system vendors were working with CoreOptics for coherent transmission technology at 40 and 100 Gigabit-per-second (Gbps). Nokia Siemens Networks (NSN) was one and had invested in the company, another was Fujitsu Network Communications. Telecom Pragmatics believes other firms were also working with CoreOptics including Xtera and Ericsson (CoreOptics had worked with Marconi before it was acquired by Ericsson).
ACG Research in its May report Cisco/ CoreOptics Acquisition: What Does It Mean for the Packet Optical Transport Space? also claimed that the Cisco acquisition would set back NSN and Ericsson and listed other system vendors such as ADVA Optical Networking and Transmode that may have been considering using CoreOptics’ 100Gbps multi-source agreement (MSA) design.
“The mere fact that you have all these companies working with CoreOptics - and we don’t know all of them – says it all,” says Lutkowitz. “This was the company they were initially going to be depending on and Cisco made a power move that was brilliant.”
With Cisco bringing CoreOptics in-house, these system vendors will need to find a new coherent technology partner. “The next chance would be with a company like Opnext coming out with a sub-system,” says Lutkowitz. “There is no doubt about it – this was a major coup for Cisco.”
For Cisco, the deal is important for its router business more than its optical transmission business. “In terms of transceivers that go into routers and switches it was absolutely essential that Cisco comes up with coherent technology,” says Lutkowitz. Cisco views transport as a low-margin business unlike IP core routers. “This [acquisition] is about protecting Cisco’s bread and butter – the router business,” he says.
The acquisition also has consequences among the router vendors. Alcatel-Lucent has its own 100Gbps coherent technology which it could add to its router platforms. In contrast, the other main router player, Juniper Networks, must develop the technology internally or partner. Telecom Pragmatics claims Juniper has an internal coherent technology development programme.
40 and 100 Gig markets
Cisco kick-started the 40Gbps market when it added the high-speed interface on its IP core router and Lutkowitz expects Cisco to do the same at 100Gbps. “But let me be clear, we don’t believe 100Gbps serial will dominate the market for a long time, or 40Gbps for that matter.”
In Telecom Pragmatics’ view, multiple channels of 10Gbps will be the predominant approach. First, 10Gbps DWDM systems are widely deployed and their cost continues to come down. And while Alcatel-Lucent and Ciena already have 100Gbps systems, they remain expensive given the infancy of the technology.
But with business with large US operators to be won, systems vendors must have a 100Gbps optical transport offering. Verizon has an ultra-long haul request for proposal (RFP), AT&T has named Ciena as its first domain supplier for its optical and transport equipment but a second partner is still to be announced. And according to ACG Research, Google also has DWDM business.
What next?
Besides Alcatel-Lucent, Ciena, Infinera, Huawei, and now Cisco developing coherent technology, several optical module players are also developing 100Gbps line-side optics. These include Opnext, Oclaro and JDS Uniphase. There are also players such as Finisar that has yet to detail their plans. Lutkowitz believes that if Finisar is holding off developing 100Gbps coherent modules, it may prove a wise move given the continuing strength of the 10Gbps DWDM market.
Opnext acquired subsystem vendor StrataLight Communications in January 2009 and one benefit was gaining StrataLight’s systems expertise and its direct access to operators. Oclaro made its own subsystem move in July, acquiring Mintera. Oclaro has also partnered with Clariphy, which is developing coherent receiver ASICs.
But Telecom Pragmatics questions the long-term prospects of high-end line-side module/ subsystem vendors. “This [technology] is the guts of systems and where the money is made,” says Lutkowitz. “Ultimately all the system vendors will look to develop their own subsystems.”
Lutkowitz highlights other challenges facing module firms. Since they are foremost optical component makers it is challenging for them to make significant investment in subsystems. He also questions when the market 100Gbps will take off. “Some of our [market research] competitors talk about 2014 but they don’t know,” says Lutkowitz.
But is not the trend that over time, 40Gbps and 100Gbps modules will gain increasing share of the line side systems optics, as has happened at 10Gbps?
That is certainly LightCounting’s view that sees Cisco’s move as good news for component and transceiver vendors developing 40 and 100Gbps products. LightCounting argues that with Cisco’s commitment to the technology, other system vendors will have to follow suit, boosting demand for the higher-margin products.
“There will be all types of module vendors but it is possible that going higher in the food chain will not work out,” says Lutkowitz. “There will be more module and component vendors than we have now but all I question is: where are the examples of companies that have gone into subsystems that have done relatively well?”
Opnext is likely to be the next vendor with 100Gbps product, says Lutkowitz, and Oclaro could easily come out with its own offering. “All I’m saying is that there is a possibility that, in the final analysis, systems vendors take the technology and do it themselves.”
Ten years gone: Optical components after the boom
Average gross margin by industry. Source: LightCounting
The biggest change in the last decade has been the way optics is perceived. That is the view of Vladimir Kozlov, boss of optical transceiver market research firm, LightCounting. “In 2000, optics was set to change the world,” he says. “The intelligent optical network would do all the work for the carrier; nothing would be done electrically.”
The boom of 1999-2000 saw hundreds of start-ups enter the market. Ten years on and a handful only remain; none changed the industry dramatically.
“The worse is definitely behind us”
Vladimir Kozlov, LightCounting
Kozlov cites tunable lasers as an example. In 2000, the CEO of one start-up claimed the market for tunable lasers would grow to US$1 billion. Today the tunable laser market is worth several tens of millions. “It [the tunable laser] is a useful product that is selling but expectation didn’t match reality,” says Kozlov.
Another example is planar lightwave circuits used to make devices such as arrayed waveguide gratings used to multiplex and demultiplex wavelengths. “Intel was the biggest cheerleader,” says Kozlov. “Did planar lightwave circuits change the industry? No, but it is a useful technology.”
Where significant progress has been made is in the reliability, compactness and cost reduction of optical components. High-end lasers with complex control electronics have been replaced by small, single-chip devices that have minimal associated circuitry, says Kozlov.
Pragmatism not euphoria
The biggest surprise for Kozlov has been how many companies have survived the extremely tough market conditions. “There were almost no sales in 2001 and the market didn’t recover till 2004,” he says. Companies latched on to niche markets outside telecom to get by while many of the start-ups survived on their funding before folding, merging or being acquired by larger players.
“The leading companies such as Finisar, Excelight (now merged with Eudyna to form Sumitomo Electric Device Innovations), Avago Technologies and Opnext were also leading companies 10 years ago,” said Kozlov, who adds Oclaro, created with the merger of Bookham and Avanex.
The market has experienced hiccups since 2004 such as the dip of 2008-2009. “The worse is definitely behind us,” says Kozlov. Many vendors have a good vision as to what to do and plan accordingly. He notes companies are maintaining resources to be well placed to respond to rapid increases in demand. And profitability is rising sharply after the belt-tightening of 2008-09. “Whoever gets in first makes the profit,” says Kozlov. “That is what happened in 1999, although that was an extreme.”
Transceiver vendors and gross margins
Another notable development of the last decade has been the advent of optical transceivers. In the late 1990s system vendors such as Alcatel, Fujitsu, Marconi, NEC and Nortel designed their own optical systems before divesting their optical component arms. Optical component companies exploited the opportunity by developing optical transceivers to sell to the systems vendors.
LightCounting forecasts that the global optical transceiver market will total $2.2 billion in 2010, yet Kozlov still has doubts about the optical transceiver vendors’ business model. “Optical transceiver vendors still have to prove they are profitable and viable, that they are a real layer in the food chain.”
Comparing the gross margin performance of the industry layers that make up the telecom industry, optical transceiver vendors are last (see chart at the top of the page). Gross margin is an efficiency measure as to how well a vendor turns what they manufacture into income. Companies such as Cisco Systems have impressive gross margins of 75%. “You have to own a market, to have something unique to maintain such a margin,” says Kozlov.
Cisco has a unique position and to a degree so do semiconductors players which have gross margins twice those of the transceiver vendors. Contract manufacturers, however, have even lower margins than the 25% achieved by the transceiver vendors, adds Kozlov, but they benefit from large manufacturing volumes.
The main challenge for transceiver vendors is differentiating their products. There is also fierce competition across product segments. “A gross margin of 25% is not the end of the world as long as there are sufficient volumes,” says Kozlov. “And of course 25% in China is a lot – local [optical transceiver] vendors don’t think twice about entering the market.”
Kozlov says there are now between 20-30 Chinese optical transceiver vendors. “Some two thirds are benefiting from government funding but a third are building laser manufacturing and making transceivers, are real, and are here to stay.”
Bandwidth drives components
LightCounting collects quarterly shipment data from leading optical transceiver vendors worldwide. It also forecasts market demand based on a traffic model. Kozlov stresses the importance of the adoption of broadband schemes such as fibre-to-the-x (FTTx) as a traffic driver and ultimately transceiver sales.
A small change in the bandwidth utilisation of the access network has a huge impact on the network core. The advent of a killer application or the emergence of devices such as the iPhone and iPad that change user habits and drive access network utilisation from 2% to 5% would have a marked impact on operators’ networks. “This would require a significant upgrade and would result in a very nice bubble,” says Kozlov.
Utilised bandwidth (terabits-per-second). Scenario 2 with the higher utilisation in the access network quickly impacts core network capacity. Source: LightCounting
Another effect LightCounting has noted is that the total transceiver capacity is not keeping pace with growth in network traffic. This discrepancy is caused by operators running their networks more efficiently, explains Kozlov. Collapsing the number of platforms when operators adopt newer, more integrated systems is removing interfaces from the network.
LightCounting does not see operators’ traffic data such that Kozlov can’t know to what degrees operators are running their networks closer to capacity but given the rapid clip in traffic growth this is not a sustainable policy and hence does not explain this overall trend.
The next decade
Kozlov expects the next decade to continue like recent years with optical component companies being conservative and pragmatic. He is optimistic about optics’ adoption in the data centre as interface speeds move to 10Gbps and above, pushing copper to its limit. He also believes active optical cables are here to stay, while photonic integration will play an increasingly important role over time.
Kozlov also believes another bubble could occur especially if there is a need for more bandwidth at the network edge that will with a knock-on effect on the core.
But what gives him most optimism is that he simply doesn’t know. “We were all really wrong 10 years ago, maybe we will be again.”
- Lightwave July 2010: Interview with Vladimir Kozlov. "Can the optical transceiver industry sustain double-digit growth?
ROADMs: Set for double-digit growth
Summary
The wavelength-division multiplexing (WDM) reconfigurable optical add-drop multiplexer (ROADM) equipment market will be the fastest growing optical segment over the next few years, according to Infonetics Research. The market research firm in its ROADM Components Market Outlook report predicts that the segment will grow at a compound annual growth rate (CAGR) of 13% from 2008 to 2013.
Q&A
Q. Can you please help by defining some terms? What is the difference between a wavelength-selective switch (WSS) and a ROADM?
AS: A WSS is a component that can direct individual wavelengths among multiple fibers. They are typically built in asymmetrical configurations, such as a 1x9 or a 9x1 and are used in quantity to build logical larger switches, effectively allowing multiple wavelengths to be switched among several incoming and outgoing fibers.
ROADMs are subsystems composed of these WSS modules but also include EDFA amplifiers, splitters, sometimes arrayed waveguide gratings (AWGs), and control electronics that include power balancing.
Q. A ROADM can also be colourless and directionless. What do these terms mean?
AS: For a ROADM to be colourless, it must be capable of dropping wavelengths of the same colour entering the node from both the West and East directions on individual drop ports. Directionless requires that wavelengths added at that node have non-blocking behavior and be capable of being routed either in the West or East direction. Removing these restrictions typically requires more WSSs to be used in the ROADM in place of AWGs, representing a classic flexibility/ cost tradeoff.
Q. In the report you split the WSS into two categories: those with up to four ports and those greater than four ports. Why?
AS: That’s really the breaking point of the market according to carriers I spoke with. Originally, four ports was a high end number but since then larger WSS modules have become available. The market has divided into small, which is 1x2 to 1x4 ports, and large, which at this point are 1x9’s.
"It is probably the only thing the circuit-loving Bell-heads and the counter-culture IP-bigots can agree on – everybody loves ROADMs."
Andrew Schmitt
Q. You say that ROADMs will be the faster growing optical equipment segment. What is motivating operators to deploy?
AS: ROADMs save money, plain and simple. When you use a ROADM, you eliminate the need to do an electrical-optical conversion and the electronics required to support it. It is particularly attractive for IP over WDM configurations, where expensive layer three router ports can be bypassed. Electrical-optical conversion is where the cost is in networks and ROADMs allow any given node to only touch the traffic required at that node. It’s probably the only thing the circuit-loving bell-heads and the counter-culture IP-bigots can agree on – everybody loves ROADMs.
Q. Are there regional differences in how ROADMs are being embraced? If so, why?
AS: North America, Japan and Europe have seen the bulk of deployments. But that has started to change with smaller carriers in developing countries adopting ROADM, particularly in Asia Pacific.
Q. Did you learn anything that surprised you as part of this research?
I assembled historical estimates of the WSS market back to 2005 through conversations with WSS vendors and equipment makers. Most people were very co-operative. When I was writing the final report, I overlayed historical WSS component revenue with the Infonetics’ ROADM optical equipment revenue we have tracked over the past years, and there was an extremely tight correlation. Where there wasn’t a correlation there was a logical reason behind it – adding more ROADM degrees to existing nodes.
Covering the component market and the equipment market makes the research much better than if I did each market individually. I’ve done a lot of research in the past few years in both technical and financial domains but this was the second most interesting – it was really refreshing to find a big double-digit growth market in optical.
Cisco System’s CEO, John Chambers, has been very public in his goal to grow the company at 15% annually, and I don’t think it is an accident that the Cisco optical group makes ROADM solutions a number one priority. They’ve silently moved up to second in market share for North American WDM, and their ROADM expertise played a big role in this.
The wavelength-division multiplexing (WDM) reconfigurable optical add-drop multiplexer (ROADM) equipment market will be the fastest growing optical segment over the next few years, according to Infonetics Research.
The market research firm in its ROADM Components Market Outlook report predicts that the segment will grow at a compound annual growth rate (CAGR) of 13% from 2008 to 2013.
Andrew Schmitt, directing analyst, optical at Infonetics discusses some of the issues regarding ROADMs and his report findings.
The art of market analysis
Bob Larribeau, a telecom industry analyst and technology consultant since 1992 has just retired. gazettabyte asked him to reflect on what it takes to be a good market research analyst.
"Most companies provide good numbers but some, quite frankly, are hard to believe."
Bob Larribeau
There are several skills a good industry analyst must develop. The ability to communicate well - in writing, in presentations and in informal exchanges - is critical, as is a broad knowledge of the telecom industry and its technologies. These days the ability to have a global view - an understand of developed, developing, and emerging markets - is also important.
In addition, there are two more skills an analyst must possess.
The first is the ability to develop a detailed knowledge of the industries covered. For telecom this includes knowledge of the service providers and vendors and the products and services they offer. Regularly publishing reports that compare results and market positions of the service providers and vendors is an important part of this process.
This skill includes evaluating data provided by service providers and vendors. It is important that definitions are aligned to be able to compare results from companies. It also requires detecting when data is misleading or false. Most companies provide good numbers but some, quite frankly, are hard to believe.
An analyst may also have to develop their own market metrics since the statistics provided by the vendors are inadequate.
When I started following the IPTV market I found it necessary to develop ways to use service provider subscriber counts as a metric. This worked well for most segments, but I had to work with video encoder vendors to use the number of encoders sold. The video encoder firms were willing to provide such information to have an independent view of market position. Such metrics developed by the analyst can provide a good assessment of the market and are likely to be the only choice.
Reporting market positions is the most sensitive part of an analyst’s job. No company is happy when an analyst’s assessment of market position does not match the company's own. A few companies believe that they can improve their market position by being aggressive with an analyst. The analyst must be able to listen to the company but cannot be browbeaten into changing his or her assessment. The challenge is doing this without disrupting an important relationship.
The second analyst skill is the ability to provide a short and long term view based on the data an analyst develops. This includes identifying key trends and understanding how these trends will affect the markets they study as well as how they will affect the participants. Providing a strong strategic perspective is what characterises the best analysts.
I developed business models for several markets I studied. I found that a simple business model can provide a good perspective on the problems that service providers face. Ten years ago one of my models showed that the financial structure of unbundled access in the U.S. market would make it difficult for the competitive broadband providers to be profitable, which was indeed true.
Business case analysis also showed that WiMAX could be a strong competitor to wireline broadband and that it will be difficult for mobile TV operators to make a profit on the service.
I also developed ways of assessing future market opportunity. I showed that there were few opportunities left for vendors in the IPTV market even though there was major growth in subscribers ahead. This conclusion was based on the assumption that it will be difficult to disrupt existing service provider/ vendor relationships in most market segments. This has proved to be the case even though many aspiring vendors felt that the market would be more open.
I found being an analyst a good job. It provided plenty of opportunity for creativity and allowed me to work with a lot of great people.
Bob Larribeau has worked on his own and for RHK (now part of Ovum) where he was responsible for its access and switching and routing services. He was also affiliated with MRG where he made contributions in broadband and developed its IPTV service. In 2004 he co-founded TelecomView with Ian Cox, another RHK alumnus. TelecomView analysed the market for WiMAX as well as broadband and IPTV.
Bob’s first project was a private analysis of the commercial Internet in 1992. In that year, commercial Internet revenues were $15M. In 1999 he wrote an analysis for RHK that forecast that IP traffic was about to eclipse both ATM and circuit-switched voice traffic and predicted the coming importance of MPLS in IP networks. In 2001 he began covering the IPTV market. Bob can be contacted at bob@larribeau.com
Active optical cable: market drivers
CIR’s report key findings
The global market for active optical cable (AOC) is forecast to grow to US $1.5bn by 2014, with the linking of datacenter equipment being the largest single market valued at $835m. Other markets for the cabling technology include digital signage, PC interconnect and home theatre.
CIR’s report entitled Active Optical Cabling: A Technology Assessment and Market Forecast notes how AOC emerged with a jolt. Two years on and the technology is now a permanent fixture that will continue to nimbly address application as they appear. This explains why CIR views AOC as an opportunistic and tactical interconnect technology.
AOC: "Opportunistic and tactical"
Loring Wirbel
What is active optical cable?
An AOC converts an electrical interface to optical for transmission across a cable before being restored to the electrical domain. Optics are embedded as part of the cabling connectors with AOC vendors using proprietary designs. Being self-contained, AOCs have the opportunity to become a retail sale at electronics speciality stores.
A common interface for AOC is the QSFP but there are AOC products that use proprietary interfaces. Indeed the same interface need not be used at each end of the cable. Loring Wirbel, author of the CIR AOC report, mentions a MergeOptics’ design that uses a 12-channel CXP interface at one end and three 4-channel QSFP interfaces at the other. “If it gets traction, everyone will want to do it,” he says.
Origins
AOC products were launched by several vendors in 2007. Start-up Luxtera saw it as an ideal entry market for its silicon photonics technology; Finisar came out with a 10Gbps serial design; while Zarlink identified AOC as a primary market opportunity, says Wirbel.
Application markets
AOC is the latest technology targeting equipment interconnect in the data centre. Typical distances linking equipment range from 10 to 100m; 10m is where 10Gbps copper cabling starts to run out of steam while 100m and above are largely tackled by structured cabling.
“Once you get beyond 100 meters, the only AOC applications I see are outdoor signage and maybe a data centre connecting to satellite operations on a campus,” says Wirbel.
AOC is used to connect servers and storage equipment using either Infiniband or Ethernet. “Keep in mind it is not so much corporate data centres as huge dedicated data centre builds from a Google or a Facebook,” says Wirbel.
AOC’s merits include its extended reach and light weight compared to copper. Servers can require metal plates to support the sheer weight of copper cabling. The technology also competes with optical pluggable transceivers and here the battleground is cost, with active optical cabling including end transceivers and the cable all-in-one.
To date AOC is used for 10Gbps links and for double data rate (DDR) and quad data rate (QDR) Infiniband. But it is the evolution of Infiniband’s roadmap - eight data rate (EDR, 20Gbps per lane) and hexadecimal data rate (HDR, 40Gbps per lane) - as well as the advent of 100m 40 and 100 Gigabit Ethernet links with their four and ten channel designs that will drive AOC demand.
The second largest market for AOC, about $450 million by 2014, and one that surprised Wirbel, is the ‘unassuming’ digital signage.
Until now such signs displaying video have been well served by 1Gbps Ethernet links but now with screens showing live high-definition feeds and four-way split screens 10Gbps feeds are becoming the baseline. Moreover distances of 100m to 1km are common.
PC interconnect is another market where AOC is set to play a role, especially with the inclusion of a high-definition multimedia interface (HDMI) interface as standard with each netbook.
“A netbook has no local storage, using the cloud instead,” says Wirbel. Uploading video from a video camera to the server or connecting video streams to a home screen via HDMI will warrant AOC, says Wirbel.
Home theatre is the fourth emerging application for AOC though Wirbel stresses this will remain a niche application.
