Daryl innis - OVUM - The Next Phase for High Bandwidth Components

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The Next Phase for Passive

Optical Components and High

Bandwidth Optical Components

Daryl Inniss

[email protected]

29 September 2011

Same as other

phases: it’s about

cost reduction for the

network operator

And growing a

profitable business for

the vendor

mailto:[email protected]


Outline

Network operator requirements and demand

The next phase in access technologies for passive optical

components

High bandwidth opportunities for emerging optical components

Risks and challenges with delivering high bandwidth products


Service providers (SPs)

System vendors

Subcomponent and

material

Optical components

Avago, Finisar, JDSU,

Sumitomo, Oclaro, Opnext,

Source Photonics...

Alcatel-Lucent, Brocade, Cisco, ECI, Ericsson, Huawei,

Juniper, Motorola, NEC, Nokia/NSN, Nortel, Tellabs,

ZTE...

2Q11 annualized

revenues $1.86

trillion, up 5%

2Q11 vs. 2Q10

America Movil, AT&T, BT, China Mobile, China

Telecom, FT, DT, NTT, Saudi Telecom, Sprint,

Telefónica, TI, Verizon, Vodafone, Zain...

Source: Ovum

* Includes only optical and datacom components

Infrastructure vendors’

2Q11 annualized

revenues $43.42billion,

up 17%

2Q11 vs. 2Q10

Optical Component

2Q11 annualized

revenues* of $6.20

billion, up 30%

2Q11 vs. 2Q10 Ovum does not track

subcomponents quarterly

and does not track

materials.

Growing telecommunications industry


Carriers usually manage annual capital expenditures

(Capex) to 15 to 16% of revenue

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Fixed Mobile

Opportunity: Network operators faced with managing single digit

revenue growth per annum while traffic grows at double digit rate


The market reality:

Network operators

want to spend less ($)

while supporting more

(traffic, subscribers)

COST REDUCTIONExactly the purpose of optics in telecommunications


Cost depends on segment requirements

Metro core

MR WDM (ROADM)

ADM

Multi-degree ROADM (WSX)

ONT

Metro WDM ROADM (OTP)

OED access ring

OCS (OXC)

OLT

DSLAM

EoW

EoS

EoF

DSL

PL

Ethernet

Switch

Metro access Long-haul core

ROADM IOF ring

WDM access ring

Premises

3000-4000 Km

reach without regeneration

FTTP

Source: Verizon and Ovum-RHK Inc.

EoF = Ethernet over Fiber; OTP = Optical Transport Platform; WSX = Wavelength Selective Cross-connect; EoS = Ethernet over SONET;

EoW = Ethernet over WDM; ONU = Optical Network Unit; ONT = Optical Network Terminal; IOF = Interoffice Facility; OED = Optical Edge Device (MSPP)

FTTP = Fiber to the Premises; PL = Private Line


Focus on Long-haul core and “Access”

Two ends of the spectrum

Metro coreADMMetro access Long-haul corePremises

Long distances

Highest bandwidth

Highest reliability

Today 10G

Tomorrow 100G

Metric: $/G/km

Short distances

Many connections

High bandwidth

Today Megabits

Tomorrow 1G

Metric $/subscriber

Modest distances

High bandwidth

High reliability

Grooming

Aggregation

Today 10G

$/G/km

Access


0

200,000

400,000

600,000

800,000

2010 2011 2012 2013 2014 2015 2016

Sub

scri

be

rs (0

00

)

DSL CMTS FTTB/FTTH

Perspective on cost in access: FTTH/B leads the growth in

wireline broadband relative to other access technologies

22% CAGR for FTTH/B compared to 2% for DSL and 5% for cable modem


Most of the FTTx growth comes from AP led by China

China’s consumer FTTx subscriber base will grow to over 110 million

in 2016 from under 10 million in 2009

FTTx consumer subscribers by country or region

0

50,000

100,000

150,000

200,000

250,000

2009 2010 2011 2012 2013 2014 2015 2016

Year-end

FT

Tx c

on

su

mer

su

bscri

bers

(000)

China Japan & Korea Rest of AP Europe NA Rest of World

China represents 50%

of worldwide FTTx

subscribers in 2016

Source: Ovum

Japan and Korea

represent 19% of

worldwide FTTx

subscribers in 2016

Remainder represents

31% of FTTx subscribers

in 2016


Resulting in enormous pressure on supply chain to

lower cost

A cost sensitive market segment—residential access

Delivering into a low cost market—China

With outlook for tens of millions of units per year


Network Core Perspective: Lightening 100G progress

Verizon tested

Alcatel-Lucent

100G with live

traffic (504km)

network Tampa –

Miami, FL

NTT demo’d 134

wavelengths @ 111Gbps

each over 3600km

(7208km in 2009)

AT&T and NEC demo’d

61 wavelengths @

114Gbps each

Verizon tested NSN

100G over 1040km

distance

Comcast tested Nortel

100G prototype – 300km

span of live network

VZ tested Nortel 100G

on high PMD fiber

Nortel completes live trials of its 100G with

Banverket ICT, Neos Networks, JANET

and SURFnet

Nortel/Telstra completed 2,038 km 100G

trial on existing fiber link

Qwest announced 2010 deployment of

ALU 100G network

Alcatel-Lucent announced

100G interfaces for 7750

SR, 7450 ESS and 1625

LambdaExtreme

Ciena and NYSE Euronext announce

2010 deployment of 100G

DT and Ericsson complete 100G field trial

Verizon deploys 1st

commercially available

100G from Nortel

AT&T, Cisco and Opnext

demonstrate single 100G

wavelength using

coherent PM-QPSK on a

live AT&T ULH link

between Louisiana and

Florida

Verizon, Juniper, NEC

and Finisar complete

100G field trial testing

interoperability between

ON system, router and

CFP MSA vendor

equipment

IEEE 100GE standard

approval in June 2010

NYSE Euronext

deployment scheduled

Qwest network-wide

deployment scheduled

2007

R&D

2008

Demos

2009

Trials & first products

2010

Standards, Early

adopters


Because 100G reduces the cost of transport

40 and 100G rules—they must coexist with 10G on the same line

Hence reuse all common equipment (amplifiers, dispersion

compensators, and filters)

Even if cost is more than 4 times 10 G for 40 G or 10 times 10G for 100G, it is still

cheaper to install on a line containing 10 G as compared to lighting a new fiber. Stated

differently, capacity upgrade with 40 and 100G is a winning solution

And coherent receivers provides added benefits for greenfield

Eliminate use of dispersion compensators

Reduce amplification requirements

Reduce cost

Low latency operation


Outline



components




Optics is one of the most expensive part of equipment

OLT Splitter

ONT

.

.

.

ONT

ONT

Central Office Customer Premise

% Optics

OLT

Data rate (G) Distance

(km)

Splits % Optics

ONTDown Up

EPON 5 1 1 10/20 16/32 20

GPON 10 1.24/2.5 0.62/1.24 20 64 40


Traditional PON component ecosystem:

Transceiver vendor role as assemblers/packagers

PIN dieAPD die

TO-can packaging

BOSAassembly

TIAchip

Transceiverassembly

Limitingamplifier

chip

Laserdriver chip

Laser die

Optical chip

vendor

Optical interface chip vendor

BOSA (bidirectional opticalsubassembly)

Transceiver

ASIC vendor

Equipment

OLT & ONUequipment

OLT + ONUASIC

PIN dieAPD die

TO-can packaging

BOSAassembly

TIAchip

Transceiverassembly

Limitingamplifier

chip

Laserdriver chip

Laser die

Optical chip

vendor


BOSA (bidirectional opticalsubassembly)

Transceiver

ASIC vendor

Equipment

OLT & ONUequipment

OLT + ONUASIC

Source: Accton

Packaging is about 70% the cost of transceivers


EVERYONE (transceiver vendors) sources lasers,

photodiodes and integrated circuits

CyOptics and Mitsubishi are the major merchant optics suppliers

Lasers

PIN die

APD die

Gennum, Vitesse, and Maxim supplies TIA, LA and laser driver

Mindspeed supplies TIA and laser drivers

Micrel suppliers laser drivers

Sumitomo supplies TIAs

Near commodity market for transceivers suppliers

Suggests assembly/packaging, delivery, price as critical factors


Market driving 25-30% ONT transceiver price decline

per year

Transceiver suppliers are mostly in low cost manufacturing regions

Notably absent are the leading OC transceiver vendors

Finisar announced entering with GPON but have not reported significant

revenues to date

Transceiver and bidirectional optical sub assembly (BOSA) suppliers

NeoPhotonics HG Genuine Hisense Accelink

Source Photonics APAC Opto

Electronics Inc

Coretek Opto

Corp.

Ligent Photonics

Inc

WTD Furukawa Delta Electronics CyOptics

OneChip

Photonics Inc.

Shenzhen

FiberTower

Communications

Hymax

Optoelectronics

Many others in

China


But market can’t beat suppliers endlessly. Fundamental

changes are needed to meet price decline demand

Photonics integration—but cautious optimism

Integrated circuits integration

Flatten food chain

From transceivers to bidirectional optical sub assemblies (BOSAs) on

board

Vertical integration

BOSA

System vendor


Photonic integration promises a cost reduction path

OneChip approachPhotonic Integrated Circuit

(passive & active)

• no discretes

• all functions in one part

Free-Space Opticsoptics assemblies from off-the-

shelf discrete components

• discrete actives and passives

• up to 20 parts to assemble

Planar Lightwave Circuithybrid SiO2-Si based PLC

(only passive)

• discrete actives

• up to 10 parts to assemble

Source: OneChip Photonics


OneChip Photonics approach promises

Monolithic photonic integration circuit (PIC) in Indium Phosphide

Integrates three discrete components

Replaces optical chips, TO Can and possibly BOSA assembly

Suited for automated assembly

No active fiber alignment

MPD

SSC

1310nm

1490nm PD

WDM

Splitter

OneChip Diplexer PIC

DFB Laser


But the market is cautious because

Marginal success for high volume, low cost products which is the

promise of photonic integration

Success with passive components

Splitters, arrayed wave guides, and variable optical attenuator multiplexers are the main

high volume examples

No example of high volume, low cost active components where photonics

integration is key to delivering to the market demand to date

Active components incumbent supply chain s very strong

current food chain using TO Can has long history of high volume, low cost

manufacturing


Another cost reduction approach is to integrate the

PMD with the MAC

Integrate physical media dependent (PMD) with the MAC

Advantages

Cost reduction

Size reduction

Lower power consumption

Disadvantages

Combining digital and analog functions puts design constraints

Limits upgrade timing

Some vendors have to design in a new MAC

Who is doing this

Lantiq and PMC-Sierra have announced

Savings

$1-$2 per ONT


Flatten the food chain by using BOSAs

Laser die

PIN die

APD die

Optical chip vendor

TO-can

packaging

TIA chip

Limiting

amplifier

chip

Laser

driver

chip


BOSA

assembly

ONU MAC

SoC

ONU/ONT CPE

equipment

vendor

e.g. ODM

ASIC vendor

EquipmentBOSA

Laser die

PIN die

APD die

Optical chip vendor

TO-can

packaging

TIA chip

Limiting

amplifier

chip

Laser

driver

chip


BOSA

assembly

ONU MAC

SoC

ONU/ONT CPE

equipment

vendor

e.g. ODM

ASIC vendor

EquipmentBOSA

Source: Ovum

Eliminate transceiver to equipment vendor margin

BOSA assembly can be done by ONU/ONT CPE vendors (ODMs)

or remain with transceiver vendors

Today, several large ODMs are assembling BOSAs themselves


Flatten further by integrating the PMD into the MAC

Laser die

PIN die

APD die

Optical chip vendor

TO-can

packaging

TIA chip

BOSA

assembly

ONU MAC

SoC

containing

LIA and

laser driver

ONU/ONT CPE

equipment

vendor

e.g. ODM

ASIC vendor

EquipmentBOSA

Laser die

PIN die

APD die

Optical chip vendor

TO-can

packaging

TIA chip

BOSA

assembly

ONU MAC

SoC

containing

LIA and

laser driver

ONU/ONT CPE

equipment

vendor

e.g. ODM

ASIC vendor

EquipmentBOSA

Source: Ovum

Attractive to large ODMs as may lead to better margins as fewer

component suppliers are needed to build CPE


Attractive cost reduction estimates

BOSA on Board save about $6.0 in GPON ONT, but not without risks

And new SoC with integrated Laser Diode Driver and Limiting Amplifier will further improve BOSA on Board cost

PON CPE Supply Analysis

BOSA

Transceiver

BOSA On Board Total Cost

BOSA On Board Saving

ONT Price (4)FE+(2)POTS

EPON $7.5 $13.0 $10.0 $3.0 $52.6

GPON $16.0 $25.5 $19.5 $6.0 $55.3

Source: Accton

Risks

Calibration

Testing

Qualification

Acceptance


CPE device manufacturers or ODMs who we should pay

attention to as the balance of power may shift to them

Cambridge (CIG) T&W (Shenzhen

Gongjin

Electronics Co.)

DareGlobal

Technologies

Hisense(?)

Superxon

Technology(?)

Furukawa(?) Accton Technology

Corp.

CyberTAN

Arcadia MitraStar Askey Computer XAVi Technologies

Corp.

the Alpha Group Comtrend (?) means unclear

of ODM status

And many more

Note that system houses use a mix of in-house CPE and outsourced

(ODM) solutions


Other structural changes in supply chain to reduce

cost

CPE Vendors

Sell directly to network operator, bypassing system vendor

Assemble own BOSA

Plug-and-play for network operator

Plug and play for consumer

System Vendor

Vertical integration (Huawei as example)

Captive IC supply (HiSilicon)

Assemble own CPE

Build or assemble own optics if necessary


Fundamental technology to reduce cost and increase

capacity

10G PON

WDM PON

Coherent PON

OFDM PON

etc

Standardization

Reuse of installed base

Develop ecosystem

Low cost

Path to lower cost

Customer pull

Integration of optics and electronics to likely play a role


Summary of cost reduction approaches for PON ONT

Photonics integration

Integrated circuits integration

Flatten food chain

From transceivers to bidirectional optical sub assemblies (BOSAs) on

board

Network operators bypassing OEMs to purchase ONTs

Vertical integration

BOSA suppliers

System vendor


Outline



components




Focus on Long-haul core

Metro coreADMMetro access Long-haul corePremises

Long distances

Highest bandwidth

Highest reliability

Today 10G

Tomorrow 100G

Metric: $/G/km

Short distances

Many connections

High bandwidth

Today Megabits

Tomorrow 1G

Metric $/subscriber

Modest distances

High bandwidth

High reliability

Grooming

Aggregation

Today 10G

$/G/km

Access


High bandwidth opportunities

100 G—the near-term goal for mainstream bandwidth

Settled on modulation format and coherent receivers to accelerate

development and reduce cost

Cost reduction due to multiple suppliers in alignment

Cost reduction due to use of electronics to clean-up signal

40 G—has ramped and continues to grow

Modulation format zoo still playing out

10 G –today’s leader, yesterday’s technology but not dead

Demand is higher than supply for most 40 and 100G

Yet market is still looking for best solution


Components and modules needed for DWDM transport

Switch router Switch router

DWDM transport

(80–1000+ km)“Client” optics

(100m–40km)

Switch router with IPoDWDM

Line-side optics

Aggregation,

DSLAM, etc.Multiple lower-speed

clients in muxponder

Optical

transport

Optical

transport

We’re talking about

this connection


Two markets with different suppliers and dynamics

Components

Lasers

Receivers

Modulators

Modules

300 pin MSA

transponder

XFP transceiver

Components are sold to OEMs and module makers

Modules typically sold to OEMs


0%

20%

40%

60%

80%

100%

2010 2011 2012 2013 2014 2015 2016

modules discrete ports

100 G DWDM initially led by discrete ports (OEM purchase

components and makes transponder due to expediency)

~1000 total ports shipped in 2010, approaching 100K by 2016


Expect modules to grow at expense of discrete ports

Historical trend

OEMs want to win the first slots so they invest ahead of component

suppliers

Component vendors focus on cost reduction

Power consumption improvements too

All OEMs not interested in developing 100 G


And component opportunities for coherent receivers

Tunable

CW laser

4 modulatorsTxOptional

modulator

Mux 4 drivers

Dem

ux

PBSRx

90-deg

optical

hybrid

2 T

IAs

4 P

Ds

90-deg

optical

hybrid

2 T

IAs

4 P

Ds

A/D

A/D

A/D

A/D

DS

P

BSLocal

oscillator

Integrated 100G Coherent

Receiver as defined by

OIF

New ProductNew Product

Optical IntegrationCMOS


Overcrowding already in some areas, one supplier in

others

Modulator Integrated

receiver

TIA A/D and DSP Mux/Demux

•JDSU

•Sumitomo

Osaka

Cement

•Oclaro

•Fujitsu

Optical

Components

•NEL

•JDSU

•Finisar

•Picometrix

•Neophotonics

•U2t

•Optoplex

•Fujitsu

Optical

Components

•InPhi •Clariphy

•Fujitsu

Microelectroni

cs Europe

•Semtech

Stable Competitive Profitable Don’t know Profitable

Stop-gap until module is ready

And others


0%

20%

40%

60%

80%

100%

2011 2012 2013 2014 2015 2016

> 10G 10G 40G 100G

CAGR

137%

27%

6%

1%

10 G leads DWDM transceiver market in revenue and

40 G goes ahead by 2013


40G transitioning to modules—a sign of maturity

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 2015 2016

Merchant ports Captive ports

But the story is modulation format dependent


Brief modulation format review

ODB DPSK DQPSK DP-QPSK

Bits per

symbol

1 1 2 4

Distance (km) ~500 >500 >500 >500

Relative

Module cost

today

Low High Higher Highest

Commercial

comment

Opnext

(Stratalight)

introduced for

first major

deployment.

Volumes has

declined since

Oclaro

(Mintera)

introduced

module

Huawei

responsible for

most ports

shipped. It

uses

components.

Modules exist.

Ciena (Nortel)

is main

supplier.

Oclaro

recently

introduced 1st

module

ODB is Optical Duo-binary DPSK is Differential Phase Shift Keying

DQPSK is differential quadrature phase shift keying DP-QPSK is duo polarization quadrature phase shift keying


DQPSK is mostly components while DP-QPSK is

transitioning to modules

0%

20%

40%

60%

80%

100%

120%

2010 2011 2012 2013 2014 2015 2016

ODB DPSK DQPSK DP-QPSK

% m

od

ule


Opportunity for DQPSK discrete component

Tunable

CW laser2 modulators

Tx

DemuxPhotodiode

TIARx

2 balanced receivers

Integrated balanced receiver

Photodiode

Optional

modulator

2 driversMux

TDC Amp2 DLIs

Tunable dispersion compensator and integrated balance receiver


Stable supply space

Tunable dispersion

Compensators (TDC)

Delay line

interferometers (DLI)

Integrated balanced

receivers

•Oclaro

•Teraxion

•NEL

•Etc.

•ITF

•Kylia

•NEL

•Furukawa

•NeoPhotonics

•Optoplex

•U2t

•Fujitsu Optical

Components

•Optoplex

And others


But long term the market is for the DP-QPSK with the

coherent receiver

Due to its synergy with the 100 G

And this will be mostly a Modules market


DWDM transceiver at 10 G and below is far from dead

Commands more that 50% of the market revenues for next few years

New products are being introduced

Tunable XFP is shipping for revenue

Tunable SFP+ has been announced


Outline



components




-20%

-10%

0%

10%

20%

30%

40%

50%

1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11

Pe

rce

nta

ge

Operating margin Gross margin

Industry aggregate gross and operating margins topped out in late 2010.

Despite recent decline, gross and operating margins are still near historic highs.

Revenue decline but also increased R&D cited as causes

OC is challenged to hold onto margin improvements

Source: Financial statements from AFOP, Avago, Avanex, Emcore, Finisar, JDSU,

NeoPhotonics, Oclaro, Oplink, Opnext, and Source Photonics.


Low cost PON demand does not mean low

performance

Use avalanche photodiodes in receivers

Used to be a high-end photodiode for telecom core applications

Use distributed feedback lasers in transmitters

Used to be a high-end laser for telecom core applications

Use burst mode integrated circuits drivers at the ONU/ONT and burst

mode receivers at the OLT

Developed for the PON market


Component vendors may fear that lessons learned in

PON migrates back to metro and core

Metro and core demand the same access cost reduction schedule

Distributed feedback lasers

Avalanche photodiodes

Cost reduction practices developed in access are implemented in core

and access

Limit use of isolators


Spending R&D budget in the “right” areas

Which modulation format was the constant 40G question asked by

module developers

Multiple modulation formats were deployed

First deployed also first to vanish

Still waiting for coherent 40G modules

Still no metro 40G solution (optimized for 80 to 500 km)

OIF helped stabilize 100G DWDM solution, but client and metro are

battle ground for competing approaches

See 10x10 MSA vs IEEE for client

See direct detect vs coherent for metro


Timing is an important element

First to market does not necessarily mean market leadership

Market laggards can win substantial market share

See Oclaro and its tunable laser business

Revenues and profits can be made with short-lived solutions

Opnext and Stratalight on ODB

High development activity does not lead to fast revenue

See 10G PON as example


Pay attention to the competitive landscape

New technical advances can displace market leaders

See Finisar overtaking JDSU in the wavelength selective switch market

because market wanted 50 GHz


Summary

Network operators want to spend less while supporting more traffic and end-customers

PON ONT is a challenging cost reduction battleground

Photonic and IC integration approaches are emerging

Flattening the supply chain and vertical integration are attractive

Network core needs higher bandwidth (40 and 100G)

Market delivering modules and components

Sustaining profitability is challenging in this market, notwithstanding the demand

Keep innovating technology, business models, etc.


Thank you!

Business

Daryl innis - OVUM - The Next Phase for High Bandwidth Components