Optical Module Market Sees Growth

Growth is visible for the optical module market, as In-Stat/MDR predicts increased revenues of over a billion dollars from 2002 to 2007. Sporting a compound annual growth rate (CAGR) of 30.5 percent, the market is expected to swell to $3.5 billion.

In-Stat/MDR believes that if not for the economic downturn, optical modules would be the product of choice for most optical networking equipment. Even though they afford a benefit to both those that make optical networking equipment and those that buy it, growth of optical modules has been stifled (specifically in the 10 Gbps [define] line rate) by an unwillingness amongst companies to try something new during long periods of uncertainty.

“Fortunately, as the economic recovery starts to take hold in the second half of 2003, the benefits of using optical modules will merge with a renewed optimism expected about the networking equipment industry, and we will see real traction from these products,” says Eric Mantion, a senior analyst with In-Stat/MDR.

Mantion believes that the companies that make optical networking equipment will choose to use optical modules as they reduce the complexity and difficulty normally associated with creating platforms that can operate at speeds up to ten billion bits per second.

Adoption will also increase as companies become more aware of the benefits associated with optical modules, particularly surrounding issues of quality assurance (QA) and diagnostic testing. QA will be less of a concern since networking equipment vendors will be purchasing modules from reputable providers, and modules can be tested before they are mounted on the optical networking board, reducing the time needed to diagnose component failures by quality departments.

In-Stat/MDR also expects cost reductions as optical module makers refine and automate the process of making their modules. Also, some of the pluggable modules that are emerging will help enterprises and service providers reduce their operating expenses since fewer replacement boards will need to be kept on hand in lieu of stocking up on the much cheaper optical modules.

However, besides all the positive aspects to optical modules on the technology side, there is a risk to optical modules at the 10 Gbps line rate. Currently, there are no fewer than 5 different multi-source agreements (MSAs) at various stages of development. On top of that, there are almost 100 companies involved in all of these MSAs, with one-third of them active in more than one MSA.

In-Stat/MDR feels that if there is not at least some paring down in the number of MSAs, then the market at 10 Gbps may be too fragmented and there will not be sufficient volumes for any one of the MSAs to earnestly drop prices enough for optical modules to be a true success.

On the bright side, there are a large number of mature companies that are involved with this process; therefore, unity is likely to prevail over fragmentation. By the end of the forecast period, In-Stat/MDR expects that there will only be two main MSAs left standing.