LightCounting expected sales of Ethernet optical transceivers to decline by 5-10% in 2023, but surging demand from Google and Nvidia kept the market growing, albeit at single digits.

Sales of Optical Ethernet transceivers declined in 2019 as a result of lower spending by the Cloud companies, which now dominate demand for those parts. Cloud companies reduced their spending again in the end of 2022 and the market outlook was dire in early 2023. Yet, one year later the market has bounced back.

The market research firm has sharply increased their forecast for sales of 400G/800G transceivers and now expect: 40% growth in 2024, more than 20% in 2025 and double digit growth in 2026-2027, as illustrated in the figure below.

Source:  LightCounting

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The growth will not continue indefinitely. Any slowdown in purchases of optics by Nvidia or Cloud companies can reverse the market dynamics. Timing of such a decline is unpredictable. All we know, it will happen at some point. Our model suggests a soft landing with single digit growth rates in 2028-2029, but it is more likely that we will see another sharp drop followed by a recovery, conforming to the rocky history of the past 15 years.

Fears of an economic recession have subsided, but they continue to weigh on spending of telecom operators, which see no revenue growth. Yet, we will not know for sure if a recession is coming until it actually starts and it will take another half a year after that for the economists to formally declare it. By that time, we will be busy discussing the timing of a recovery.

What remains certain is that optics are critical for data centers and for the rest of the global networking infrastructure. Recent progress in generative AI makes the future even more exciting. Keep this in mind, while navigating the markets volatility as shown in the above graph.

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About LightCounting:

The market research firm was established in 2004 with an objective of providing in-depth coverage of market and technologies for high speed optoelectronic interfaces employed in communications. By now, the company employs a team of industry experts and offers comprehensive coverage of optical communications supply chain.

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References:

https://www.lightcounting.com/report/march-2024-ethernet-optics-287

https://www.lightcounting.com/report/march-2024-quarterly-market-update-288

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