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100G Market Share in 2012

January 8, 2012 Its arrived: 100G is here in force. Back in 2011, people told me my forecast was wrong, and they were right. But instead of my forecast being too high (which is what some clients said), it ended up being too low. Coherent 100G shipments in 2012 outstripped even my enthusiastic estimates. This note provides a qualitative and quantitative state of the 100G market in 2012, including:

Vendor coherent 100G technology detail Vendor 100G port shipment market share Market share by coherent technology and evolution of component market

VENDOR COHERENT 100G TECHNOLOGY DETAIL Almost all current 100G solutions share the same DP-QPSK approach, with the exception of Ciena and Infinera (they use dual-carriers with half the baud rate, essentially 2 sets of 40G coherent hardware sped up 25%). But not all 100G solutions share the same coherent DSP technology; some equipment vendors made large investments in proprietary approaches while others used off-the-shelf DSPs from other vendors or purchase complete modules. There are 4 ways to deliver 100G solutions in the market today:

Design optical hardware in-house, including a custom ASIC for coherent DSP functions Design optical hardware in-house, but purchase DSP from NTT Electronics (NEL) Purchase an optical module from JDSU, Finisar, Oclaro, or another optical component vendor that uses the NEL DSP Purchase an optical module from Acacia that uses their in-house custom ASIC DSP

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Exhibit 1: 100G Coherent Equipment Vendor Approaches In-House HW Design ASIC End 2011 Alcatel-Lucent Ciena Alcatel-Lucent Ciena Cisco Infinera NSN (Cisco/CoreOptics) In-House HW Design NEL DSP None Fujitsu Huawei NEC NSN (2013) NEL-Based Module None Unknown Acacia Module None Tellabs Xtera ZTE

End 2012

There was a dramatic increase in the number of vendors offering 100G in the past year. This wide availability of 100G was the key market catalyst in 2012 and should lead to port shipment growth of at least 2 to 2.5x in 2013 as carriers worldwide roll out 100G upgrades to 15-year-old 10G technology in the core. 100G MARKET SHARE CAVEATS Ive hesitated to track 100G, 40G, or 10G on a revenue basis because it is impossible for me (and every other analyst) to verify revenue associated with specific 40G, 100G, or 10G line cards on a vendor-byvendor basis. There is simply no way to know if one vendor shipped line cards at some specific ASP or if common equipment was discounted to inflate line card pricing. When a vendor ships a 100G line cardor 1,000 line cardsI cannot see if such an event was performed via unnatural financial acts. However, it is possible to track and count port shipments. Some vendors provide guidance on port shipments, some do not. In both cases, component vendors can be consulted to cross check these claims or uncover actual data. 100G line cards are complex, but many components are sourced from 3 or sometimes 2 vendors. I assembled a snapshot of 2012 100G share using claims from some equipment vendors and cross checked them with several component vendors. For equipment vendors that have not provided guidance, Ive worked with several component vendors to obtain guidance on shipment trends. The result is an approximate picture of 2012 100G market shareI stress approximate because though it is unlikely that a vendor is buying components that sit unused, it is possible that yield or sub-par performance is forcing them to purchase more components than would normally be needed. This data is a good benchmark of activity; it is not a perfect benchmark of market success, and it is certainly not an accurate leading indicator of future market share.

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That said, it is a rough indication of where things sit today and is certainly worth sharing with clients. Companies dont buy $20K+ worth of components to build a 100G line card unless they are planning to do something important with it. 100G COHERENT PORT MARKET SHARE IN 2012 Exhibit 2: 2012 Coherent 100G Ports (est. 10.4K)

Infinera 19%

Ciena 10% Cisco 7% Acacia 7%

Huawei 22%

NEC 4% Fujitsu 4%

Alcatel-Lucent 22%

NEL-Based Modules 4% NSN 2%

Based on a mix of equipment and component vendor data, this chart represents our best approximation of vendor 100G activity for 2012, with a projected total of just over 10,000 coherent 10G ports shipped (including dual-carrier solutions from Ciena and Infinera). I originally forecast 7,000 ports in 2012, and this still represents a good approximation of shipments into end-carrier applications. The reality on the component side is that the amount of product shipped is higher, with total 100G lasers, chips, modulators, mixers, drivers, etc. shipped to equipment clients well exceeding 10,000 ports. Some of this activity is aggressive prototyping and production rampingfor example, Ciena is set to release WaveLogic 3 based single-carrier solutions in 1Q13. They ordered a large amount of components in 2H12 for this product introduction; however, these shipments are not included in this graph. This represents my best guess at non-prototyping, production-targeted line card assembly for 2012.

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Further notes:

I have limited data on Infinera as their PIC-based approach makes tracking components impossible for me. These numbers are my best conservative guess of what they shipped in 2012: 250 in 2Q, 1,000 in 3Q, and 750 in 4Q. Unlike all other vendors, I have no ability to cross-check this conclusion, so use it cautiously. Ciena numbers are an estimate of their dual-carrier 100G solution. There was large order activity surrounding single-carrier 100G, but it did not ship in 2012 and has been removed. Huawei numbers were reduced compared to component purchases to adjust for prototyping activity. Although Huawei did produce non-coherent 100G, there are no non-coherent 100G figures included. Ive also included an estimate for component shipments by module companies such as Oclaro, JDSU, Acacia, and others who are supplying optical modules to NEMs (network equipment manufacturers). This is listed as NEL-based modules, as all of these companies, with the exception of Acacia, use the DSP from NEL. Acacia shipment data for 4Q12 remains unclear pending resolution of an issue with the Semtechbased SERDES (see our September 2012 CRS note 100G Update from ECOC).

OBSERVATIONS ON MARKET SHARE Alcatel-Lucent and Ciena, the 100G heavyweights of 2011 and early 2012, are no longer the overpowering market leaders. Alcatel-Lucent out-shipped Ciena 2:1 in 2012, but this quantitative success deserves some notes.

Alcatel-Lucent unseated Ciena for best 100G technology this year (see our September 2012 Optical Vendor Leadership: Global Service Provider Survey) after 2 years of Ciena being on top. Though Alcatel-Lucents lead was small and both vendors are far and away seen as leaders relative to other companies, this slight change was a notable event. Alcatel-Lucent's low gross margins on optical gear were exposed when the company sold debt in the open market; these margins are well below competitors' in the industry. It is unclear to what degree pricing is being used to obtain share. Ciena notched spectacular win announcements in 2012, and though they are present at Verizon and AT&T, Alcatel appears to be notably absent. Ciena is on the cusp of releasing a single-carrier 100G solution; Alcatel's next generation solution remains 6 months behind by our estimates.

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Huawei originally set out to design their own DSP but has since migrated to an NEL-based reference design to meet time to market requirements as Chinese carriers accelerate plans for 100G deployments into 2013 from 2014. Huawei shipments have been made almost exclusively outside of China with the company citing multiple wins worldwide, including substantial shipments into Russia, though China Telecom and China Mobile are planning rollouts in 2013. Huawei also appears to have slowed ZTE's market entry by blocking access to a crucial component made by Semtech. ZTE uses 100G modules made by Acacia, and Acacia lost the ability to export modules using the Semtech SERDES into China. This has since been resolved by using a competing part from APM. NSN dropped the DSP it used from CoreOptics (now Cisco) and migrated to an NEL-based solution. The company has also made investments in ClariPhy, which announced plans to field a 100G DSP follow on to their 40G solution. Fujitsu is shipping 100G only in North America, and NEC is now shipping small quantities of 100G equipment in Japan. Acacia, aside from shipments to ZTE, is also supplying Tellabs and Xtera. 100G COHERENT PORT MARKET SHARE BY TECHNOLOGY Since there is no standard in place for 100G DSP and none appears on the horizon, it is worth observing the market share of the 4 technology approaches outlined earlier. Exhibit 3: 2012 Coherent 100G Ports by OEM and DSP (est. 10.4K)

In-House-NEL 31%

In-House-ASIC 58%

Module-Acacia 7%

Module--NEL 4%

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The pie segments map 1:1 to the previous market share graph, with Alcatel-Lucent, Ciena, Cisco, and Infinera accounting for the 58% using in-house ASICs. NEL-based solutions account for just over a third of shipments, though this is largely due to massive Huawei activity. If Huawei were to migrate to an internal DSP (unlikely at this point), the vast majority of volume would be based on full custom DSP approaches. In the meantime, NEL controlled 35% (31% + 4%) of the market with its DSP approach, more than any single vendor. Acacia is in a very tough spot, and its total market will be limited unless it wins Huawei or Cisco, Ciena, or Alcatel-Lucent decide to outsource optics. EVOLUTION OF 100G COMPONENT MARKET The pie chart above also shows that 89% (31% + 58%) of all 100G coherent hardware is designed in-house, illustrating the limited market for optical module makers. Network equipment manufacturers (NEMs) that roll their own optics designs are likely to crave more integrated coherent TOSA and ROSA assemblies. The opportunity in the component space for coherent 100G isn't modules, it is the sub-components the NEMs need to build their own. This market is unlikely to follow the arc of the 10G market, where NEMs started by building their own 10G optics then migrated to 300-pin modules from JDSU, Bookham, EMCORE, etc. The difference this time is the DSP; without a standard DSP algorithm, there is no way to deliver a standards-based module. The TOSA/ROSA will likely become standardized via OIF activity (or some other means) and eventually become pluggable. 100G line cards will ship from Ciena, ALU, Huawei, and others with an in-house DSP design connected to a pluggable module, which would contain the TOSA/ROSA and support different reaches for metro or long haul applications. WRAP UP Coherent 100G had a huge 2012. Our 2011 expectations for 2012, deemed aggressive by most we spoke to, were exceeded by 50%. 2013 should be another year of follow-on success, with the technology offered by virtually all vendors at prices that make it competitive with outdated 10G technology on a cost/bit basis, particularly for long haul applications. It is this sequence of events that will trigger a multi year spending mix shift into core networks as decade-old architectures give way to the "optical reboot." Alcatel-Lucent, Huawei, and Infinera shipped the most 100G ports in 2012, though Ciena certainly has laid the groundwork for a successful 2013. The window of opportunity for traditional module makers is effectively closed, with the major new opportunity in pluggable coherent optical sub-assemblies. As always, I welcome your comments. Andrew Schmitt Principal Analyst, Optical +1 408.583.3393 andrew@infonetics.com

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