Cloud providers become growth catalysts of the optical transport market
- Cloud providers have become a key element of growth in the optical networking industry.
- Dell'Oro Group forecasts the optical transport market will show growth in 2025.
- Data center interconnect (DCI) is set to grow at twice the rate of the overall market.
- IPoDWDM momentum continues to ramp.
As cloud providers seek to expand their reach, the optical industry is experiencing a new growth cycle.
Dell’Oro Group revealed in its new forecast that the optical transport market is forecast to return to growth in 2025 after declining 9 percent in 2024.
Following the steep decline caused by oversupply and poor macroeconomic conditions, the research firm predicts that the optical transport market will grow at an average annual rate of 5 percent over the next five years, reaching $19 billion by 2029.
DCI growth accelerates
A significant factor in the growth of optical transport will be data center interconnect (DCI), which is set to grow at twice the rate of the overall market.
Within the DCI market segment, data center operators are projected to migrate to IPoDWDM in metro applications. The research firm said that DWDM Long Haul for DCI is expected to grow at a five-year compounded annual growth rate (CAGR) of 15 percent, driven by cloud providers.
“We are anticipating that the time has come to interconnect all those new AI data centers being built,” said Jimmy Yu, Vice President at Dell’Oro Group. “We are forecasting data center interconnect to grow at twice the rate of the overall market, driven by increased spending from cloud providers.”
What is IPoDWDM?
IP over DWDM (IPoDWDM) is a technology that integrates IP routers and network switches in the OTN (Optical Transport Network). IPoDWDM offers several benefits, including reducing the need for network components such as shelves, processors, and interface cards, while also lowering power consumption, OPEX (Operational expenditure), and CAPEX (capital expenditure). This approach also simplifies the network, eliminating the SDH/SONET intermediate layer.
ZR/ZR+ optics raise IPoDWDM’s profile
IPoDWDM will be a key driver of growth in the optical networking industry.
Dell’Oro forecasts that revenues for ZR/ZR+ optical plugs used in routers and Ethernet switches (IPoDWDM) will grow at an average annual rate of 20 percent, contributing nearly 12 percent share of the Optical Transport market during the five-year forecast period.
Cloud providers have been early proponents of disaggregating WDM systems into their subsystems and are expected to remain a popular choice among this segment. Communication service providers will also increasingly adopt this approach.
While the initial growth of disaggregating WDM systems was driven by demand for transponder units, Dell’Oro said that over the next five years, it will be fueled by a greater demand for ZR/ZR+ optics and optical line systems (OLS).
“The direct purchases of equipment for DCI will encompass ZR/ZR+ optics for IPoDWDM, optical line systems for transport, and DWDM systems for high-performance, long-distance terrestrial and subsea transmission,” Yu said.
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What is Data Center Interconnect (DCI)?
Data Center Interconnect (DCI) technology connects two or more data centers over short, medium, or long distances using high-speed packet-optical connectivity. Data Centers house compute and storage resources for applications, data, and content.
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Sean Buckley
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