Optical module industry analysis report for 2017

Infiberone managerGVIP2018/3/26 10:22:39

Optical module industry analysis report for 2017

1. The growth of traffic will lead to the rapid development of optical communication industry

1.1. Global traffic growth is sustainable and IDC market propelling demand for optical communications industry

In recent years, the global IP congestion, the increase of global mobile bandwidth, network video congestion, and cloud services have raised higher requirements for the Internet data communication. As shown in the following chart, the global IP flow is 22% in the next 4 years.

Chart 1:2015-2020 global IP flow CAGR is 22% (unit: EB/Month)

This year, the share price of the global optical communication market is booming. From the beginning of February 9th to the end of February 9th, the information technology index of the S & P 500 has increased by 7%, which is largely due to the opportunities brought by industry growth to drive the growth of industrial companies. In our view, the rapid growth of the optical communication market and the operators' market are closely linked to the increasing demand for mobile bandwidth and the rapid expansion of the cloud computing market. According to data from CISCO and Gartner, global mobile bandwidth will remain high in the next few years, and the cloud computing market will continue to rise in 17 years. The industry's overall strength, the fundamentals of the company improved significantly, stocks in the optical communications Domain company APPLIED OPTOELEC 16 years performance almost doubled, II-VI INC also changed the 15 year decline in performance decline, net profit of 16 year Q3 growth rate of 40%, corresponding to the company's share price rose.

Chart 2: global mobile bandwidth growth (EB/ months)

Chart 3: global network video traffic growth forecast (EB/ months) 31% CAGR 2015-2020

Chart 4: global cloud service growth forecast (unit: Shabibyte, 1SB=2^70MB)

Chart 5: Global IDC market and year-on-year growth

1.2 The rapid development of IDC industry promotes the stability of the optical communication market

Benefiting from the increasing demand for global network communications and data communications, as well as the continued growth of the IDC market, the overall demand for the optical communications industry is still robust, According to Ovum's forecast in August 2015, the annual growth rate of the global optical communications market will reach 10% from 2015 to 2020.

Chart 6: Global optical communications industry market space (unit: million dollars)

As an indispensable part of the optical communication industry, the optical module market has benefited significantly. Since 2010, the growth rate of the global optical module market has increased. Over the past five years, the growth rate of the composite module has exceeded 10%. In the past two years, the growth rate of 14/15 is about 14%. It is expected that the growth momentum in the next few years will remain stable, and the market sales revenue will increase to 6 billion 600 million US dollars in 2019.

Chart 7:2010~2019 global optical module market growth and forecast ($100 million)

1.2. From the point of view of subdivision demand, "data center" and "high speed" become the key words of China's optical module growth in the future.

The total sales input of the domestic optical module in 2015 was 1 billion 620 million dollars, accounting for about 35% of the global market (data source: ICCSZ)

Chart 8:2010~2019 domestic optical module market growth

Chart 9:2010~2015 domestic light module market is increasing in the global proportion

1) Industry growth depends on the data center construction. According to the industry differentiation of downstream customers, optical modules are divided into two types of markets: Telecom and Datacom.

Data center market:

From the development of IDC industry in China in recent 7 years, it has the characteristics of small base and fast growth. In recent two years, the growth rate of the industry has been maintained at around 40%, two times the growth of the global market, and has strong potential for development. According to China's IDC circle forecast, the size of the domestic IDC market will reach 139 billion yuan in 2018, and the growth rate will remain at about 40%. The high speed growth of IDC drives the development of the domestic optical module market faster than the foreign market.

Chart 10:2009~2015 growth in the domestic IDC market (unit: billion yuan)

Telecom Market:

According to the bulletin of communications and transportation statistics released by Ministry of industry and Commerce in 2015, the number of Internet broadband access ports reached 470 million in 2015, a 73 million 201 thousand increase over the previous year, up 18.3% over the same period last year. The Internet broadband access port is "light to copper retreat" trend. XDSL port has decreased by 39 million 37 thousand compared with last year, the total number dropped to 98 million 705 thousand, and the proportion of Internet access port dropped from 34.3% last year to 20.8%. Optical fiber access ports have increased by 106 million net to 269 million, up from 40.6% to 56.7% from last year.

Chart 11: China's Internet broadband access ports are rising (units: 10000)

Considering the growth of downstream industries and the renewal cycle of optical modules, the growth of short-term industries is mainly driven by the enlargement of the demand of data centers and the upward trend of industries.

2) Product angle: high-speed optical module is the main growth point (especially 100G). From the perspective of product category, with the development of optical communication network to ultra high frequency, ultra high speed and super large capacity, high-speed optical module is developing rapidly.

The rate optical module has become the mainstream. According to Infonetics statistics, in 2015, 10G/40G/100G sales revenue reached $2 billion 440 million, and will be 12.2% compound annual growth rate of the steady and rapid growth, is expected to 2020, the global 10G/40G/100G optical module revenue will reach $4 billion 350 million, in the overall optical module market share will exceed

It's over 60%. Among them, the annual growth rate of 40G optical module and 100G optical module will be up to 9% and 24.5% respectively.

Chart 12: global optical module subdivision market (unit: $100 million)

1.3. The three year action plan for major information infrastructure projects has been promulgated, and the planning of industry demand is clear.

On the domestic side, in January 12th of this year, the NDRC and the Ministry of industry and information jointly issued the three year action plan for the construction of information infrastructure. It is estimated that the related engineering projects will continue to accelerate and the industry demand for optical communication market is expected to remain at a high level. The specific objectives are quantified as follows:

A new generation of high speed optical fiber network: new trunk cable 90 thousand kilometers, the new FTTH port 200 million, urban areas to achieve optical network coverage, the ability to provide more than 1000 Mbps access services, large and medium-sized city home broadband users 100 Mbps more flexible choice, administrative villages fiber ratio increased from 75% to 90%.

Mobile broadband network: there are 2 million new 4G base stations, which realize the full coverage of 4G network in township and densely populated administrative villages. The popularity rate of mobile broadband users is more than 75%.

Global network facilities: China international land access cable direction and bandwidth capacity increased significantly; overseas POP added 40, a total of 120.

High level application infrastructure: initially formed a new pattern of advanced technology, reasonable structure, moderate scale and green intensive data center; CDN network extends to all prefecture level cities; Internet applications widely support IPv6 protocol.

At the same time, the domestic cloud computing company, led by Ali, has expanded rapidly in recent years, as well as a great deal of birth.

Market demand, driven by the construction of data center, fiber, high-speed optical module, and other demand has increased greatly.

2, Multiple perspectives on the development of China's light module industry

An optical module is an interface module used for information transmission between devices (switches, servers, etc.). It passes through the photoelectric conversion.

By changing the electrical signal from the sending terminal to the optical signal through driving chip, the semiconductor laser can be converted to optical signal, and can be transmitted quickly through optical fiber. At the receiving end, the optical signal can be converted into electrical signal to enter the device.

Figure 13:H3C Ethernet switch layout and Gigalight optical module layout.

From the chain perspective, optical communication module industry upstream by optical device industry, integrated circuit chip industry and the printed circuit board (PCB) industry, downstream customers are mainly two categories: operators including telecom operators (Telecom, broadband data communications, optical fiber access), telecommunications equipment manufacturers (data center security monitoring, smart grid, etc.).

2.1. The penetration of the upstream chip is difficult and the domestic is still based on packaging.

At present, domestic manufacturers have a weak accumulation of optical module chips, and most of them still lack the capability of independent research and development of chips. Private optical device manufacturers do not have enough funds to invest in chip research and development. Therefore, most of the companies in the industry form the business of optical module packaging and production, and the business mode of chip acquisition (the international main chip manufacturers are Broadcom, Semtech, Cortina and so on). A small number of Companies in China started the early deployment of chip development and high-speed products, but the current chip level can only meet the needs of their own 10G products, and the chips needed for high-speed optical modules still do not form mass production. Without the support of large scale chip supply, domestic manufacturers will hardly be able to form the scale shipment of high-end products. Therefore, the company that can acquire the core chip procurement capability will have competitive advantage in the short run.

In the future, under the premise of no subversive technology, the company with core chip purchasing power and independent research and development in the field of chip will be the first opportunity. Enterprises that rely solely on packaging and products at low speed will have a more difficult battle in the market price. In addition, vendors of independent research and development chips may face another potential risk, such as:

Broadcom, a chip supplier, is acquired by the optical module manufacturer Avago, which will potentially block the optical module vendors of independent research and development chips. Note: the internal structure of the optical module, as shown in the following diagram, is mainly composed of a controller, a laser driver, a limiting amplifier, and a mutual resistance amplifier.

Chart 15:SFP package type light module internal structure diagram and optical module disassembly diagram

optical module requires more than one chip, for example: Maxim "10GBASE-SR Ethernet SFP+" optical module design includes laser driver + limiting amplifier integrated chip, chip controller function (table), the program will MAX3799 limiting amplifier and laser driver ic. (data source: MAXIM Integrated)

2.2, comparison and analysis of the types of optical module packaging

Although the direction of the optical module industry is clear and the technical standards have been formed, the mature packaging of the industry participants in China

Technology is still mainly concentrated in the low speed market, the development path of the manufacturer is roughly the same, all from the low end, to the high end.

And 100G's optical module, only a few vendors are really commercially available. The difficulty is that the 100G optical module has high technical requirements for high-speed IC design, device, test and software. The difficulty and cycle of R & D increase the cost of R & D, and it is easy to encounter bottlenecks (data source: C114 communication network).

From the perspective of industry trend, the encapsulation technology of optical module is developing towards smaller and more integrated development, and the cost and power consumption are becoming more and more low, high speed, long distance and hot swap.

The main types of packaging are: 1x9, GBIC, SFP, XENPAK, SNAP12, X2, XFP, SFP+, QSFP/QSFP+, and so on.

CFP, CXP and so on. Among them, SFP/SFP+, QSFP/QSFP+ and CFP are the main packaging forms.

Table 2: comparison of optical module products in different packaging forms

From the data center's point of view of product application, switches mainly use QSFP encapsulation type optical modules, SFP is used in low speed area, routers adopt CFP encapsulation type, and servers mostly use SFP type products.

Chart 16: applications of all kinds of optical module products in the new high interconnected data center

From the rate, the low speed optical module 1G/10G/25G mainly uses the SFP package type, and there is a small amount of it.

The QSFP type, and the 40G/100G product basically uses the QSFP and CFP packaging. From the optical fiber type, the QSFP module is used in the parallel single / multi mode fiber, and the duplex / multi mode fiber can be used.

SFP/QSFP/CFP multi type module.

Table 3: module selection under different fiber types, distances and data rates

Comparison and analysis of light module price: the same light module package type products, the price is not consistent with the parameter adaptation differences and fluctuations in the same brand. The maximum transmission distance and the price is related to low wavelength price is cheaper.

In addition, the optical module has the original and the third sides, and there is a big price difference between each other. The reason is the high price of the original optical module, monopoly original equipment manufacturers, equipment manufacturers worldwide number, like CISCO, HUAWEI and other well-known manufacturers fewer, so the competition is not fierce; brand effect, this kind of global light module maker FINISAR, a leading city for concentration rate and high industry guarantee the degree of acceptance; third party optical module compatibility low recognition, optical module is used only in special field, switch many models, the third party may not be able to fully cover the part of the type of possible compatibility issues, and with the original factory will avoid this problem. However, from the point of view of the price and quality, the third party optical module has a higher cost performance, and the original part of the light module is also made by the third party manufacturer.

2.3. High speed and high integration still continue fermentation, silicon light technology adds new opportunities to industry

At present, the high-end optical modules in the market are 100G products, and domestic manufacturers are limited by chip factors and their own technology level in 100G high-speed optical module. The overall shipment is not large, and some manufacturers are still in the testing stage. The high-end market is still under the control of Finisar, Avago and other manufacturers, while such manufacturers are still trying to break through higher rates. In March 2015, CDFP MSA published the 3 version specification for the 400Gbps (16*25Gbps) pluggable optical module. (data sources: fiber optic online) in addition, some of the leading domestic manufacturers are also gradually starting to make technical reserves on 400G products.

Note: the originate members of CDFP MSA include: Avago, Brocade, IBM, JDSU, Juniper Networks, Molex Incorporated, and TE Connectivity. The contributing member companies include FCI, Finisar, HUAWEI, Inphi, Ixia, Mellanox Technologies, Nextron, Oclaro, Semtech, Sumitomo electrician, Xilinx and Shan Yi motors.

(source: Department of special communication) in addition to continue to high speed, high integration, low cost, long distance is still the direction of upgrading.

In addition to the above development path along the optical module continues to the direction of high-speed and highly integrated development, silicon optical technology is also gradually being one of the possible paths of some device manufacturers and put into action. HUAWEI, a domestic manufacturer, began to deploy in the field of silicon optical technology in 2013, when it acquired Caliopa, a Belgian silicon light technology developer.

In November 21, 2016, Leti, the CEA Tech Research Institute of the European public research platform, announced the launch of the optical module plan, Horizon 2020, which aims to commercialize mass production based on silicon photonics technology, aiming at the needs of data centers and supercomputing systems. The Leti coordinated COSMISS plan will integrate COMS electronic technology and silicon photons technology and innovative high output fiber packaging technology. These solutions will be several orders of magnitude higher than the existing VCSEL based optical module performance. The plan comes from 11 partners from 5 European countries, and is committed to developing the highest 2.4Tbps/200Gbps mid-board optical module of each fiber. The power consumption per bit is less than 2pJ, and the cost per Gbs is less than 0.2 euros. The goal is in 2019 A number of technologies that may be used (data sources: OFweek optical communication), which may be used to display this optical module in the year:

By introducing the SiN layer, a temperature insensitive MUX/DEMUX device can be developed for CWDM. The SiN layer can also be used in the middle waveguide layer of the optical input and output.

By improving the performance of the highest 50Gbps modulator, it makes the modules smaller and more energy-efficient. A new technology for developing a capacitive modulator, a slow wave depletion modulator with a 1D cycle, including a tunable SiCoMPOsition's GeSi electric absorption modulator and photonic crystal electric diffraction modulator are used to realize millimeter level devices. The future hybrid integrated silicon quotient III-V laser will also be integrated into the SOI/SiN platform. Project participants: Italian semiconductor, Italy Pavia University, Finisar, Swiss Vario-Optics, British Seagate,The University of southern Paris, St. Andrews University, University of Southampton, and the University of Ayming, France, etc. However, there is still a lot of uncertainty in the mature path of silicon optical technology, which needs to be accumulated for a long time.

For domestic companies, the advantage is that earlier accumulation can keep them smaller than foreign manufacturers, but long term investment is hard to get immediate rewards, which is also a deterrent to many manufacturers.

3, the global light module manufacturers Heng Qiang strong, the Asia Pacific region fierce

3.1, industry participants concentrated product line high degree, leading enterprises more complete

According to OVUM statistics, in 2015 the global light module manufacturers shipments ranked first Finisar, the city

Market share reached 16%, 2, 3 Lumentum, Avago was also established enterprises within the industry, a relatively stable pattern. The top 6 industries have a market share of over 50%, the pattern of stability, high degree of concentration.

Figure 17:2015 global light module manufacturers market share situation

From the perspective of product sequence distribution, the industry has more rich products in the field of telecom industry, of which Finisar has the most comprehensive product line, which includes almost all products of data center and telecom industry demand. While other manufacturers specialize in products such as Foxconn, the focus in the field of data center, Lumentum is on the contrary. On the whole, the enterprises with higher market share also have higher product line availability, so the complete product line has a positive impact on the company's market share. Another common feature is that most manufacturers' product categories in telecom industry are richer than data centers, which may be related to different needs in downstream network environment.

Chart 18: the comparison of the product sequence of the mainstream optical module manufacturer

3.2. The "ratio of gross interest rate and research and development income" is more effective than domestic higher and high speed products.

The foreign company's gross margin is generally higher than China company, Chinese company gross margin between 20% and 30%, Guangxuan Science

Technical research and development costs are more invested, and the main business income is more, but the net profit rate and the gross interest rate are less than the smaller size of the new Yi Sheng. Avago has the highest R & D cost, and its gross interest rate is up to 45%.

Table 9: a comparison of the company's key financial data in 2015

High speed optical module products have improved the gross interest rate. Two companies, Oclaro and NeoPhotoics, who have a relatively small amount of income, choose to distinguish the product from the light module speed. The common thing is that the sales ratio of high-speed optical module is increasing year by year, and the level of gross interest rate also increases. It is foreseeable that the company with high speed optical module technology will be more profitable in the future.

Chart 19:Oclaro income ratio and gross margin

Chart 20:Neophotoics income ratio and gross margin

3.3. The downstream customers of the industry are scattered and the competitive ability of the products is more pure.

There are plenty of application scenarios in the downstream market of optical modules, and there are lots of dealers and equipment manufacturers themselves. Therefore, most of the optical module business customers are more dispersed, and there is no single major customer risk. HUAWEI, ZTE, arrow, Alphabet and other companies in the procurement is not limited to a single supplier, share a lot, considering HUAWEI such manufacturers procurement of quality control requirements and economic factors, HUAWEI purchasing performance and price differences with the level of products of different brands of small.

Besides, the purchasing demand of the core customers is relatively stable. For example, Finisar company disclosed in the 16 annual report, 16 years, 15 years and 14 years, the top 10 customers accounted for 56%, 55%, 58% of total sales respectively, and remained stable basically. At present, the main products of domestic enterprises in the domestic enterprises to the future Chinese digestion, increase market share, develop downstream leading customers (leading global equipment manufacturers high demand) will become the main way, HUAWEI, ZTE, Lenovo and other domestic customers are mainly foreign manufacturers still purchase, therefore, domestic manufacturers of products through technical development the market is recognized as income amount and quality of double upgrade path.

In the downstream market focus distinction, the large amount of income differences of Finisar and Lumentum, Finisar data communication products accounted for relatively large, and the yearly income in Lumentum; and the industry to maintain the same level of growth of 14%, telecommunication products accounted for relatively large, and data communication products accounted for relatively stable. It can be said that the two companies with leading industry have their own ways of survival, and the different downstream customer attributes do not form a constraint on the growth of the company.

Chart 21:finisar income ratio

Chart 22:lumentum income ratio

3.4, the United States is the main market, the Asia Pacific region is increasingly fierce competition

From the point of view of income distribution in different regions, in the Finisar and Lumentum companies with larger income volume, the US is still the largest market in the field of optical modules, while in the Oclaro and NeoPhotoics companies with smaller income volume, China's market share has surpassed that of the US market. The proportion of sales in the US and China showed a trend of growth as a whole, while sales in other parts of Asia (Japan, Malaysia, etc.) and Europe and Africa showed a decreasing trend. The Asia Pacific market, including China, is becoming the focus of international companies.

Although foreign manufacturers in the domestic income rising, the income level of domestic manufacturers also steadily improved, short-term domestic and foreign manufacturers will benefit from the domestic downstream market high degree of prosperity to form a win-win breakthrough, foreign manufacturers in the field of high-speed market will be faster than domestic manufacturers; long-term competition is inevitable, low field in China manufacturers have a cost advantage, the future is expected to gradually replace the development of high-speed field of domestic manufacturers is relatively backward, to solve the problem after the chip and laser source, will be able to form an alternative to foreign manufacturers, HUAWEI, ZTE and other downstream customers to follow the trend of the international.

4. Summary

Under the background of the overall growth of the industry, the company in the short-term industry will get a good growth momentum as long as the product quality is guaranteed, and the low-end and high-end manufacturers will get a good growth momentum, which is an industry investment opportunity. But in the medium and long term, due to the gradual maturity of manufacturing technology, the number of manufacturers who can produce low-end products and the increase of single manufacturer's shipments, the price trend of products will be more obvious. The future competition between manufacturers is still mainly on the technical level. Companies with the following traits are worth paying attention to:

High speed optical module of high proportion of the company or the rising proportion of the company has a long-term growth potential in income; have deployed in chip design, if able to overcome technical bottlenecks, to enter the field of high-end products will be a higher level of profitability based on the industry, has more advantages in price competition;

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