Optical Device Industry - the new cycle of resonance of datacom and telecom
A prediction by market research firms in the optical communications industry at the beginning of 2021 concluded that despite concerns, the outlook for the optical device market in 2021 was positive. A year has passed, although demand in some market segments has fluctuated, the overall performance is in line with expectations.
In addition to market performance, the entire industry chain is also continuing to evolve in the direction of meeting higher speed, lower power consumption and lower cost. At the same time, the industry's merger and acquisition integration is also continuing.
This year, Chinese optical module manufacturers dominated the global TOP10 list. In 2020, there are 6 vendors on the TOP10 list, and it is expected to increase again in 2021. This shows the prospect of China's optical device market, while the domestic industry chain is also investing heavily in the research and development of independently controllable optoelectronic devices.
Datacom and telecom resonance, ushering in the business cycle
From the application scenarios of optical devices, the three main directions are wireless, access, and datacoms, which are the two important market segments of telecom and datacoms. From the domestic and foreign mainstream optical device manufacturers in the first three quarters of 2021 financial reports, as well as research data, the overall market is stable and rising.
Specific to each market segment, wireless application scenarios follow the pace of 5G construction, the deployment pace of the three major domestic operators slowed down in the first half of the year, and the revenue of the entire optical device market has fallen back. Hisense Broadband CTO Li Dawei pointed out in the first half of 2021 that the 5G wireless optical module business fell off a cliff after the third quarter of 2020 to the first half of 2021. Broadex Technologies Secretary Zheng Zhixin also said that the first half of 5G demand was low.
However, in the second half of the year, with China Mobile and China Radio International, China Telecom and China Unicom wireless main equipment collection completed one after another, the entire industry chain are full of morale, but also recognized by the capital market, most of the shares of listed companies of optical components in that time generally rose.
For the access side, the era of gigabit optical network is coming. The latest data from the Ministry of Industry and Information Technology show that by the end of November, China's gigabit broadband users reached 33.86 million, a net increase of 27.46 million over the end of the previous year. Under the impetus of the Ministry of Industry and Information Technology's "Double Gigabit" Network Cooperative Development Action Plan (2021-2023)", the three major operators have accelerated the collection and deployment of 10G PON, and the number of port growth in the entire FTTx market segment in 2021 is evident to all.
The datacom market has also been the fastest growing segment in recent years. Cloud computing companies are having a growing impact on the optical module market as their spending on servers, network equipment, etc. is growing faster than Communication Service Providers (CSP) and enterprises. The top five cloud computing companies already account for nearly 50 percent of global optical module sales.
However, the development of optical devices in 2021 also encountered a number of off-site factors. Starting in the second half of the year, optical device suppliers generally reported various supply chain constraints and impacts in the form of component shortages, longer lead times, price increases, higher transportation costs and shipping delays, which the industry expects to continue through the end of 2022.
“Hot” silicon photonic, 800G on the agenda
It has been a constant trend for optoelectronic chips and devices to develop towards high-speed rate, integration and low cost. Since its introduction, silicon photonic, with its outstanding advantages of low power consumption, high speed rate and compact structure, is considered to solve the bottleneck of power consumption, rate and volume faced by information networks, and is highly sought after by the industry chain.
Does silicon photonics have the conditions for large-scale commercialization so far? In a seminar co-hosted by China International Optoelectronics Expo (CIOE) and C114 Communications Network in 2021, all parties in the industry chain, including chip manufacturers, optical device manufacturers, and system equipment manufacturers, said that there are mature products and solutions, waiting for commercialization.
It is worth mentioning that in the core optoelectronic chip, the dominant power has long been in the hands of other countries, especially the localization rate of high-speed optical communication chip is low, mainly dependent on the United States and Japan and other foreign manufacturers. Professor Zhou Zhiping of Peking University believes that silicon photonics technology will be our core technology to achieve "overtaking", the need for real investment in the design, manufacturing, testing, packaging, and other aspects of silicon photonics chips.
Another hot topic in 2021 is undoubtedly 800G. For 800G, optical module vendors are leading the way, with the industry's mainstream optical module vendors releasing related products and shipping small quantities, while related test solutions have also been launched on the test side.
For the choice of 800G technology solutions, China Academy of Information and Communication Research Institute of Technology and Standards, Director of Broadband Network Research Department Zhao Wenyu in a previous speech, 800G coherent will appear unpluggable, pluggable coexist, while co-packaged optics (CPO) may become an optional solution in the future. Super 800G, will follow the 800G high integration scheme, pluggable mode is expected to advance first, CPO introduction trend to enhance.
Zhao Wenyu said that the future development trend of 800G and other super 100G optical module technology solutions will be the long-term coexistence of CPO and pluggable, III-V family and silicon photonics parallel development, silicon optical + CPO will lead the new direction.
M&A is still the main theme in the industry
In addition to the continuous evolution of technology, the optical device industry is always inseparable from "mergers and acquisitions". However, unlike previous years, the M&A in the optical device industry in 2021 is quite dramatic.
Back in 2019, Cisco announced the acquisition of Acacia for $2.6 billion, but was late in obtaining anti-monopoly review from Chinese regulators. In early 2021, Acacia wanted to terminate the deal, citing a failure to obtain approval within the time frame specified in the agreement, but Cisco said it had already received approval. The two sides eventually negotiated for Cisco to acquire it for $4.5 billion, up 70 percent, and Chinese regulators decided to approve the deal with restrictive conditions.
There is also the case of Lumentum, II-VI and MKS bidding for Coherent. Lumentum was the first to make an offer, and MKS bid up the price, then II-VI also joined the acquisition war. In the end, Lumentum and II-VI had several rounds of competitive bidding, and II-VI finally won.
In addition, there is also the M&A farce between VIAVI and EXFO, two head test vendors. EXFO plans to go private and delist, VIAVI has repeatedly offered to buy EXFO, but the founder of EXFO, who is also the controlling shareholder of the company, has responded each time that he is determined not to sell, and said that VIAVI's move is only to create trouble in the privatization process of EXFO and only to eliminate VIAVI's major competitor, to the detriment of the health of the industry. In the end, the privatization of EXFO was successful.
Of course, there are also mergers and acquisitions that accomplish each other, such as Lumentum's acquisition of NeoPhotonics to target the 400ZR/ZR+ market. TongYu Communication holds 100% of OPWAY Communication diversify its business.
Putting aside the "drama" component, M&A is not an end, but only a means. The root of enterprise longevity is the product that suits the trend, which is one of the important reasons for the continuous M&A in the whole optical device industry.
Any cross-product, cross-market, cross-level mergers and acquisitions in the industry will have an impact on the upstream and downstream of the industry chain in the short term, but more should be viewed rationally, which is conducive to technology and product innovation at the macro level, technical level, and product level, and will continue to be more mergers and acquisitions in the future.