Does Cisco Systems' CPAK module threaten the CFP2?
Cisco Systems has been detailing over recent months its upcoming proprietary optical module dubbed CPAK. The development promises to reduce the market opportunity for the CFP2 multi-source agreement (MSA) and has caused some disquiet in the industry.
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"The CFP2 has been a bit slow - the MSA has taken longer than people expected - so Cisco announcing CPAK has frightened a few people," says Paul Brooks, director for JDSU's high speed transport test portfolio.
Brooks speculates that the advent of CPAK may even cause some module makers to skip the CFP2 and go straight to the smaller CFP4 given the time lag between the two MSAs is relatively short.
The CPAK module, smaller than the CFP2 MSA and three quarters its volume, has not been officially released and Cisco will not comment on the design but in certain company presentations the CPAK is compared with the CFP. The details are shown in the table above, with the CFP2’s details added.
The CPAK is the first example of Cisco's module design capability following its acquisition of silicon photonics player, Lightwire.
The development of the module highlights how the acquisition of core technology can give an equipment maker the ability to develop proprietary interfaces that promise costs savings and differentiation. But it also raises a question mark regarding the CFP2 and the merit of MSAs when a potential leading customer of the CFP2 chooses to use its own design.
"The CFP2 has been a bit slow - the MSA has taken longer than people expected - so Cisco announcing CPAK has frightened a few people"
Paul Brooks, JDSU
Industry analysts do not believe it undermines the CFP2 MSA. “I believe there is business for the CFP2,” says Daryl Inniss, practice leader, Ovum Components. “Cisco is shooting for a solution that has some staying power. The CFP2 is too large and the power consumption too high while the CFP4 is too small and will take too long to get to market; CPAK is a great compromise.”
That said, Inniss, in a recent opinion piece entitled: Optical integration challenges component/OEM ecosystem, writes:
“Cisco’s Lightwire acquisition provides another potential attack on the traditional ecosystem. Lightwire provides unique silicon photonics based technology that can support low power consumption and high-density modules. Cisco may adopt a proprietary transceiver strategy to lower cost, decrease time to market, and build competitive barriers. It need not go through the standards process, which would enable its competitors and provide them with its technology. Cisco only needs to convince its customers that it has a robust supply chain and that it can support its product.”
Vladimir Kozlov, CEO of market research firm, LightCounting, is not surprised by the development. “Cisco could use more proprietary parts and technologies to compete with Huawei over the next decade,” he says. “From a transceiver vendor perspective, custom-made products are often more profitable than standard ones; unless Cisco will make everything in house, which is unlikely, it is not bad news.”
JDSU has just announced that its ONT-100G test set supports the CFP2 and CFP4. The equipment will also support CPAK. "We have designed a range of adaptors that allows us to interface to other optics including one very large equipment vendor's - Cisco's - own CFP2-like form factor," says Brooks.
However, Brooks still expects the industry to align on a small number of MSAs despite the advent of CPAK. "The majority view is that the CFP2 and CFP4 will address most people's needs," says Brooks. "Although there is some debate whether a QSFP2 may be more cost effective than the CFP4." The QSFP2 is the next-generation compact follow-on to the QSFP that supports the 4x25Gbps electrical interface.
Differentiation in a market that demands sameness
At first sight, optical transceiver vendors have little scope for product differentiation. Modules are defined through a multi-source agreement (MSA) and used to transport specified protocols over predefined distances.
“Their attitude is let the big guys kill themselves at 40 and 100 Gig while they beat down costs"
Vladimir Kozlov, LightCounting
“I don’t think differentiation matters so much in this industry,” says Daryl Inniss, practice leader components at Ovum. “Over time eventually someone always comes in; end customers constantly demand multiple suppliers.”
It is a view confirmed by Luc Ceuppens, senior director of marketing, high-end systems business unit at Juniper Networks. “We do look at the different vendors’ products - which one gives the lowest power consumption,” he says. “But overall there is very little difference.”
For vendors, developing transceivers is time-consuming and costly yet with no guarantee of a return. The very nature of pluggables means one vendor’s product can easily be swapped with a cheaper transceiver from a competitor.
Being a vendor defining the MSA is one way to steal a march as it results in a time-to-market advantage. There have even been cases where non-founder companies have been denied sight of an MSA’s specification, ensuring they can never compete, says Inniss: “If you are part of an MSA, you are very definitely at an advantage.”
Rafik Ward, vice president of marketing at Finisar, cites other examples where companies have an advantage.
One is Fibre Channel where new data rates require high-speed vertical-cavity surface-emitting lasers (VCSELs) which only a few companies have.
Another is 100 Gigabit-per-second (Gbps) for long-haul transmission which requires companies with deep pockets to meet the steep development costs. “One hundred Gigabit is a very expensive proposition whereas with the 40 Gigabit Ethernet LR4 (10km) standard, existing off-the-shelf 10Gbps technology can be used,” says Ward.
"One hundred Gigabit is a very expensive proposition"
Rafik Ward, Finisar
Ovum’s Inniss highlights how optical access is set to impact wide area networking (WAN). The optical transceivers for passive optical networking (PON) are using such high-end components as distributed feedback (DFB) lasers and avalanche photo-detectors (APDs), traditionally components for the WAN. Yet with the higher volumes of PON, the cost of WAN optics will come down.
“With Gigabit Ethernet the price declines by 20% each time volumes double,” says Inniss. “For PON transceivers the decline is 40%.” As 10Gbps PON optics start to be deployed, the price benefit will migrate up to the SONET/ Ethernet/ WAN world, he says. Accordingly, those transceiver players that make and use their own components, and are active in PON and WAN, will most benefit.
“Differentiation is hard but possible,” says Vladimir Kozlov, CEO of optical transceiver market research firm, LightCounting. Active optical cables (AOCs) have been an area of innovation partly because vendors have freedom to design the optics that are enclosed within the cabling, he says.
AOCs, Fibre Channel and 100Gbps are all examples where technology is a differentiator, says Kozlov, but business strategy is another lever to be exploited.
On a recent visit to China, Kozlov spoke to ten local vendors. “They have jumped into the transceiver market and think a 20% margin is huge whereas in the US it is seen as nothing.”
The vendors differentiate themselves by supplying transceivers directly to the equipment vendors’ end customers. “They [the Chinese vendors] are finding ways in a business environment; nothing new here in technology, nothing new in manufacturing,” says Kozlov.
He cites one firm that fully populated with transceivers a US telecom system vendor’s installation in Malaysia. “Doing this in the US is harder but then the US is one market in a big world,” says Kozlov.
Offshore manufacturing is no longer a differentiator. One large Chinese transceiver maker bemoaned that everyone now has manufacturing in China. As a result its focus has turned to tackling overheads: trimming costs and reducing R&D.
“Their attitude is let the big guys kill themselves at 40 and 100 Gig while they beat down costs by slashing Ph.Ds, optimising equipment and improving yields,” says Kozlov. “Is it a winning approach long term? No, but short-term quite possibly.”