Recently, market research firm LightCounting updated its market forecast for the period from 2024 to 2028.
LightCounting pointed out that since the second half of 2022, the demand for optical connectivity has started to decline, leading to an excess inventory in the entire supply chain. Six months ago, the market outlook for 2023 was very bleak, with mainstream optical module and device suppliers reporting a significant decline in revenue at the beginning of this year. The market outlook for the second half of this year and even 2024 is not optimistic.
Nvidia reported in its last two quarterly reports that sales of artificial intelligence hardware, including optical interconnections, have increased significantly, boosting industry morale. Google has increased its investment plan for artificial intelligence clusters, followed by many other cloud computing companies. Suddenly, people‘s expectations for 2024 skyrocketed. The components of 4x100G and 8x100G optical modules are already in short supply.
As shown in the figure below, it is too late to prevent a market downturn in 2023, but LightCounting predicts that the sales of Ethernet optical modules will increase by nearly 30% in 2024. It is expected that all other segmented markets will also recover or continue to grow next year, although the growth rate is relatively small. After a 6% decline in the global optical module market in 2023, it is expected to grow at a compound annual growth rate of 16% over the next five years.
Amazon, Google, Microsoft, and other cloud computing companies are expected to lead the development of new AI applications. This will require significant upgrades to its artificial intelligence cluster, which requires a significant amount of optical connectivity. In the next two years, the main focus will be on 400G and 800G Ethernet optical modules and AOC. The upgrade of data center cluster connectivity is also accelerating, which means that the shipment volume of 400ZR/ZR+and 800ZR/ZR+will increase from 2024 to 2025.
Cloud computing companies have achieved high growth in the past few years, but as growth slows down, they have had to reassess their plans by the end of 2022. The capital expenditure of cloud computing companies almost doubled between 2019 and 2022, but their current investments are more conservative. It is expected that the capital expenditure of the top 15 ICPs will only increase by 1% in 2023, and remain basically unchanged after several consecutive years of double-digit growth
However, investment in artificial intelligence infrastructure remains a key focus in 2023 and will account for a larger share of total capital expenditure. Unless there is an economic recession, LightCounting predicts that cloud computing companies’ investments will return to stable (double-digit?) growth in 2024 and beyond.
Telecom service providers plan to reduce capital expenditure by 4% in 2023. From 2024 to 2028, CSP’s capital expenditure is unlikely to surge as they are striving to find new sources of income. The deployment of 5G has not changed this situation, at least not yet.
Going to the cloud for businesses and consumers is a new priority for telecom operators. Large enterprises can establish private clouds, but consumers and small and medium-sized enterprises must rely on telecommunications networks. This presents potential opportunities for telecommunications service providers to provide low latency cloud broadband connections to a wider range of customers and generate additional revenue. Supporting these services requires continuous investment in access networks and metropolitan area networks.
Post time: Nov-09-2023