January 21, 2010Optical transceiver vendors collectively have had a good quarter, with many reporting revenues up. The optical transceiver market is also set for a better year, growing to $2.2 billion, 5 percent up compared to 2009, according to LightCounting.
Yet market conditions will remain tough. Transceiver vendors are challenged in how to differentiate their optical transceiver designs -- and revenues -- given the products conform to common form factors.
To understand the importance of transceiver differentiation, it is worth reviewing the purpose of multi-source agreement (MSA) transceiver form factors.
Common form factors arose so that optical equipment makers could avoid developing their own interfaces or being locked into a supplier’s proprietary design.
Judged in those terms, MSAs have been a roaring success.
Equipment makers can now buy optical interfaces from several sources, all battling for the design win. MSAs have also triggered a near-decade of innovation, resulting in form factors from the 300-pin large form factor transponder MSA to the pluggable SFP+, less than a 60th its size.
But MSAs, with their dictated size and electrical interfaces, are earmarked for specific sectors. As such the protocols, line rates, and distances they support are largely predefined. Little scope, then, for differentiation.
Yet vendors have developed ways to stand out.
One approach is to be a founding member of an MSA. This gives the inner circle of vendors a time-to-market advantage in securing customers for emerging standards. The CFP MSA for 40- and 100-Gigabit Ethernet is one such example.
Some designs required specialist optical components that only a few vendors have, such as high-speed VCSELs used for the latest Fibre Channel interfaces. In turn, many vendors don’t have the resources -- designs teams and the deep pockets -- needed to develop advanced technologies, such as those for 40- and 100-Gbps transponders, whether it is integrated optical devices or integrated circuits.
Being the first to integrate existing designs into smaller form factors is another way to differentiate oneself. An example is JDSU, which has integrated a tunable laser into the pluggable XFP MSA. But like all good ideas, others follow: At least three vendors are expected to sell tunable XFPs this year.
Menara Networks is using its IC design and software know-how to encapsulate line card functionality within a pluggable. Its XFP has an application-specific IC that supports the Optical Transport Network (OTN) encapsulation standard. The advantage to system vendors? They can design a universal line card without needing to support OTN, using the pluggable only when required.
Transceiver vendors are also differentiating their products through marketing approaches. New-entrant Far Eastern vendors are selling transceivers directly to service providers and data center operators, bypassing equipment makers.
They are also looking to differentiate on price, cutting costs where they can (including R&D) and focusing on bread-and-butter designs. They are quite happy to leave the leading vendors to make the heavy investments and battle each other in the emerging 40- and 100-Gbps markets.
Industry analysts take a pragmatic view: Differentiation doesn’t matter so much for optical transceivers since even if a vendor gets a lead, others inevitable will follow. And anyway, the cost of transporting traffic is still too high even with the fierce competition instigated by MSAs. In turn, optical transceivers are now a permanent industry fixture; they can’t be conjured to disappear.
For optical transceiver vendors, however, the result is a market that is brutal.
So can optical transceiver vendors differentiate their products? Of course they can. But like discus-throwers, while standout performances are to be expected, their room to maneuver will remain limited.
Roy Rubenstein is the editor of the blog Gazettabyte
