Sales of optical transceivers set a new record in Q3 2010

Recovery in the datacom market started in second half of 2009 with sales of Ethernet and Fiber Channel transceivers increasing rapidly, at 10–30% per quarter. Growth in sales of these products slowed in Q2 2010 but gained momentum in the latest quarter. New products such as 10 GigE and 8 Gbps SFP+ transceivers accounted for most of the growth, while sales of many legacy products fell sharply.

Growth in sales of SONET/SDH and DWDM modules was more modest in the early stages of the recovery, but it gained strength in Q3 2010. The DWDM market segment posted 28% growth, driven by rapidly increasing sales of fixed wavelength and tunable 10 Gbps XFP transceivers and 40 Gbps DWDM modules.

Accelerating recovery in the telecom transceiver market is in line with the latest forecast report released by LightCounting in September 2010. Sales of components, such as ROADMs and pump lasers, used in the initial stages of network installations were increasing fast in the first half of the year, and LightCounting expected sales of interface modules to pick up as network upgrades progress to installing line cards—this is clearly happening now.

Meanwhile, leading suppliers of pump laser modules used in optical amplifiers reported slower sales in Q3 2010 and gave negative guidance for the current quarter. This slowdown is probably related to inventory management by the customers, but it may also signal uncertainty regarding the scope of network upgrades planned for 2011. On a more optimistic note, sales of ROADMs, which declined in Q2 2010, recovered in Q3 2010 and are expected to remain strong in the current quarter.

Sales of GPON modules were leading the FTTx market growth in early 2010, but EPON sales started picking up as well later in the year. First shipments of 10G-EPON modules were also reported by several suppliers. The 10G modules are priced a factor 20 higher than lower data rate modules used in FTTx applications. While the pricing is likely to decline as volumes of 10G-PON become substantial, this clearly presents a very attractive opportunity for suppliers of FTTx modules.

First sales of 100GigE 10km reach transceivers were also reported by several suppliers. Initial pricing for low volume shipments of this product is 100 times higher than pricing of 10GigE transceivers, reflecting significant increase in complexity. Google has been a vocal opponent of IEEE approved designs for 100 Gbps 10km interfaces and the current pricing explains why.

Profitability of many optical component and module vendors reached the highest level since the telecom bubble burst in 2001, as suppliers increased capacity utilization and took advantages of economies of scale. More consolidated industry landscape contributed to improved financial performance of leading suppliers.

Detailed market data is available from LightCounting as a sales database that covers Q1 2009 to Q3 2010 quarterly sales of more than 100 products used in SONET/SDH, CWDM, DWDM, Ethernet, Fibre Channel, parallel optical interconnects, active optical cables, and FTTx applications. The database is compiled of confidential sales information provided exclusively to LightCounting by more than 20 leading suppliers.