Covid-19 Impact on Optical Communications
Suzanne Ffolkes, OSA Chief Communications Officer
The telecom market is expected to experience minimal growth by end of year despite a downturn due to the covid-19 pandemic. “There’s always a dip in the market at the beginning of the year,” says Lisa Huff, senior principal analyst, optical components, Omdia, UK. She adds that the likelihood that the crisis will linger and trigger a global downturn in the sector is remote. “We flattened the curve enough that there will still be a little bit of growth this year overall.”
Huff described the pandemic’s impact on the optical communications sector during a webinar hosted by OSA Industry Development Associates (OIDA) on 16 June 2020. As countries started to shutdown, she says there was some disruption in the market but China is back online and several large companies carried enough inventory to maintain operations.
The second quarter, however, is expected to show a decline in revenue with the spread of the pandemic in North America. Inventory levels have not changed much year to year but some suppliers have burned through some of their inventory in the first quarter and there will be a larger impact in the second quarter.
The optical networking market was down 28% from first quarter 2019 to first quarter 2020 but only 3% year to year. It is a seasonal impact, Huff says, not related to covid-19 but the second quarter will be different.
What is bolstering the market? Service providers had to augment networks to address bandwidth needs as more people started working from home instead of the office during the pandemic. Videoconferencing from home had a huge increase. By April 2020, Zoom had huge growth with 300 million daily user participants and Verizon had 50% VPN growth during the first quarter.
On 15 May, the U.S. government announced more sanctions against Huawei, a Chinese multinational technology company which currently is number one in market share for optical networking equipment. The action, Huff notes, could affect Huawei’s ability to use U.S. technology and software to design and manufacture its semiconductors abroad and produce 400G+ products, affecting the supply chain worldwide.
The U.S. government amended its position on 16 June, announcing that U.S. companies can now work with Huawei on 5G and technology standards. Huff acknowledges the announcement is positive news for the optical networking industry. “We cannot afford to take the largest optical networking supplier and isolate them,” she says. “A lot of component suppliers work with Huawei so if the U.S. is backing off, it’s a good thing for the market.”
As for data center networks, 100G is still the majority of the market but by 2022, 100G will decline and 400G will take over. She notes that 800G is possible with eight lanes of 100G but creates a power consumption issue. If the power issue is not resolved, 200G will increase with 400G going down. By 2025, majority of revenue is expected to be 400G based.
Edge compute is an emerging market trend to support 5G applications. Internet content providers started adding business cloud data centers a couple of years ago but now they are getting closer to end users with edge compute for low-latency and high-bandwidth applications, Huff says. AT&T is building edge compute sites and partnering with Microsoft. CenturyLink announced the rollout of more than 100 plus edge compute sites for the U.S. Amazon launched a wavelength edge compute program and partnered with Verizon to integrate 5G applications. More startups are expected to enter the edge compute market as they secure funding, she adds.
You can view the full OIDA Market Update webinar, here.
