Highlights of LightCounting’s December 2023 Quarterly Market Update on Optical Networking

Posted on by Alan Weissberger

LightCounting’s Quarterly Market Update report [1.] for Q3 2023 revealed that the optical communications industry financial results were disappointing.

Every financial market indicator that the market research firm tracks – ICP (Integrated Communications Provider) and CSP (Communications Service Provider) capex, datacom and networking equipment, and semiconductor (x-Nvidia) and optical components sales – all had negative growth compared to Q3 2022.

Note 1. LightCounting’s Quarter Market Update reports are designed to provide an easy-to-digest snapshot of optical transceiver growth trends, backed up by detailed quarter-by-quarter sales data collected via LightCounting’s proprietary vendor survey. Performance metrics and commentary for top-tier telecom and internet service providers, network and datacom equipment makers, and optical component and semiconductor vendors are also included to provide an understanding of what drives sales trends at the transceiver level.

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There were some notable exceptions to the generally downbeat results:
  • Alphabet and Microsoft had record capital expenditures.
  • Arista, Broadcom, Calix, Innolight, and Nvidia all reported record revenues.
With the exception of broadband access vendor Calix, the standout equipment and component makers all had one thing in common – they all benefited from increased spending on Artificial Intelligence (AI) infrastructure by the large ICPs. Nvidia reported sales growth of more than 30% sequentially and more than 200% year-over-year, perhaps the clearest indicator of how frenzied the race to grow AI infrastructure has become.

LightCounting is projecting, based on its current analysis, that sales increased in Q3 and will increase further in Q4, to a new record high, as shown in the figure below. This data includes estimates for 400G and 800G transceivers manufactured by Nvidia internally.

The expectation of growth in Q4 carries over to 2024 as well and is consistent with the guidance given by several companies ranging from Alphabet and Amazon to Coherent and Lumentum.  The big caveat is that growth in 2024 will be tightly focused on AI-related infrastructure, and growth in demand for those products is expected to far outstrip demand in other segments like traditional telco and enterprise networks. Most of the growth in the optical components and modules market will come from sales of 800G transceivers.

References:

https://www.lightcounting.com/report/december-2023-quarterly-market-update-199

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