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Microsoft’s Flatter Data Center Difficulty

September, 2018

Despite the greater efficiency of the newer networks of the hyperscalers, as their infrastructure continues to grow in size, they will gradually start grappling with similar problems (although not necessarily even close to the same degree) as traditional ISPs. Even in early 2016, we wrote: “[T]he emphasis on DCI ‘throwaways’ may be exaggerated – and that [optical] overbuilding may be a means to keep capital costs down, as there would continue to be growth with the older generation deployments. For example, we have learned that certain transport gear installed about three years ago in Google’s network has not been removed, yet.” Besides dealing with multiple layers of networking, another concern for operators, such as Verizon, has been to avoid “putting too many eggs in one basket,” which especially hit home after 9/11. One of Microsoft’s ideas, which still remains only in the investigati ...

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Ciena/Packet Design: First-Rate Acquisition

September, 2018

While Ciena’s historic record for acquiring companies has left a lot to be desired, its most recent buyout of Packet Design was a shrewd move. In contrast, Infinera, which at quite a late date, ostensibly was forced to pick up a struggling firm with a lot of incumbent roots, despite the continuing insistence by the only PIC-centric supplier that it possessed a leading-edge solution. Conversely, Ciena’s purchase of the Nortel’s assets to save itself was about nine years ago, and it is becoming even clearer to us that our expectation for a while will come to pass that along with Huawei, the two firms are set to end up ultimately dominating the international optical system market, especially on the terrestrial side. Yet, despite Ciena’s strengthening position in the space, the leadership still cannot seem to avoid making remarks that defies credulity. Verizon’s next-generation metro contrac ...

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COBO’s Scheme: Odd Life/Demise Likely

August, 2018

fibeReality expressed our point of view that if COBO ever happens, it would be in the form of Co-Packaged Optics (CPO). In our opinion, it is also instructive to closely examine both COBO’s historic relevance to the present, crumbled optical ecosystem, which we were anticipating right up to the precipice. We believe this situation was almost solely created by the detrimental mentality of Microsoft, as well as other hyperscale data center operators. These players might be shocked by the increasingly derogatory remarks we are hearing regarding even the intellect of their network planners and engineers from executives at major optical component companies. Brownie points are only given out at the procurement departments of the Microsofts for bringing in say, transceivers for ten cents less, enabling countless competitors with lower-cost solutions to enter the space, while seemingly ignoring ...

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Finisar CEO’s Babe-in-the-Woods Rhetoric

August, 2018

In an article published this month, Finisar’s CEO, Michael Hurlston said: “To be truthful, I didn't know much about optics.” Certainly, by now, such a revelation would not be news to anybody in the industry, and fibeReality believes the continuation of making statements at least about his previous high level of ignorance would start to have diminishing returns, particularly with analysts on the Street. When Hurlston earlier in the year asserted, "That there is a much wider level of competition [in optical communications] than has existed in semiconductors, has been a big surprise,” we actually gave him the benefit of the doubt in pushing the naivete story a little much either for purposes of modesty or to give competitors a false sense of confidence. There was no other legitimate explanation, as somebody in the telecommunications world, would have to be under a rock not to know that chip ...

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Multicore Fiber: Just a Cool Design for Now

August, 2018

Research on MultiCore Fiber (MCF) was first conducted almost four decades ago. It is definitely a real and a cool technology, and a user could eventually purchase greater capacity and density, including more optical communication gigabits per second per square millimeter than with current solutions. Still, despite continuing development work on the concept, especially in recent years, there are enduring challenges over both cost and practical use. On the first matter, the expense would be much higher than a single fiber in that a common configuration is with seven singlemode cores, and so, it is hardly like dividing by n, and it could even be the equivalent of as many as five fibers. On the second consideration, there has to be more of a compelling demonstration of fan-in/fan-out devices. Today the entire infrastructure is set up for 125-micron OD fiber with a single core. Now one would ...

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The Case for 4x50-Gig Indeterminately

August, 2018

While fibeReality is willing to double down on our wakeup call to the hyperscale data center operators on the need for them to help reconstruct an optical ecosystem for development efforts on 4x100GbE for the long term, and for 50G in the short term, it is important to take a step back on what they could actually live with -- for an indefinite period of time. In the past, we have consistently not only pointed out the technical difficulties in moving to higher data rates, but cases in which we believed executives at these big private networks were disingenuous in suggesting they lacked the means of adaptability in a capacity crunch. Also, when fibeReality saw the initial unviable schemes produced by standards bodies for 400GbE, we were an early advocate for moving down to working on a more conservative 200GbE standard. Moreover, although there is an undeniable enigma associated with stran ...

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Broadcom's Tomahawk 3: An Optics Riddle

August, 2018

There is a mystery concerning stranded capacity as Broadcom’s StrataXGS Tomahawk 3 next-gen switching chipset offers quite a bit of bandwidth with a total capacity of 12.8 terabytes. The problem is in imagining how it all works in that the near-term front panel pluggables cannot provide enough bandwidth on a 2-row by 16. We are assuming the use of a QSFP-DD, and even packaging two 100-gig PMDs in one QSFP, meaning 32 QSFP-DDs on that panel with 2x100G per module, working out to only 6.4 terabytes. So, a hyperscale data center operator would be short 50% in what is projected to be a 200G world indefinitely. Although individuals at Microsoft can be found stating they would be willing to live with this situation, such large users will ultimately not put up with a very inefficient state of affairs from a cost point of view. In fact, it begs the important question: Why buy the Tomahawk 3, if ...

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400GbE: Wakeup Call for Hyperscale Operators

August, 2018

When it comes to the critical development efforts for 400GbE, the big-four hyperscale data center operators do not appear to be doing much more than going through their usual motions. Despite their undeniable role in the destruction of the optical ecosystem, they seem inclined to believe that the mere expectation of high revenues from this gear will miraculously result in the arrival of these highly complex devices relatively soon. Incredibly, despite the arrival of 100G electrical possibly being as many as five years away, Amazon apparently expects to see 4x100G by the end of 2018. There is just no obvious sense of urgency by these buyers as it looks like their short-sighted goal, after they became dominant purchasers, to drive down devices to razor-thin margins, will result in about 1.5 large component vendors in the US remaining in the space. The longer these users wait to make the tr ...

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Co-Packaged Optics on Trial

August, 2018

Recently, fibeReality has written about the latest catchphrase in the optics space, co-packaged optics, and mentioned the potential challenges with expense and yield, as well as other alternatives. In looking at the case for the technology, it does have some attractive aspects. The tiny chip-like optical modules are superior to COBO-like gear in that the latter is lousy on pad density. The idea with the former is that the engineer is reaching inside the pluggable module, and taking out the optical engine on the tiny printed circuit board, and then throwing away a lot of the package. While the argument can be made that the package is not the most expensive part, its assembly and testing are both a part of the cost, but most importantly, the engine is only driving about two centimeters away from the switch, and so, there is a significant reduction in both the power consumption, as well as ...

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Lumentum 3DS at Apple: A Competitive Analysis

August, 2018

Right now, it seems that Lumentum’s primary challengers for VCSELs for 3D Sensing (3DS) applications for use in Apple’s iPhones will probably remain both Finisar and II-VI indefinitely. We strongly suspect that this large customer is champing at the bit to have some real volume coming from another vendor other than Lumentum in order to have greater price competition. Also, Apple is undoubtedly still looking forward to being in a position to punish its largest supplier for what can only be described as poor judgement in being so vocal originally about its projected margins at a time when there was really only one buyer. fiberReality also believes it has become clearer as to a major reason Lumentum has not raved about the extraordinary accomplishment of delivering six-inch VCSEL wafers, perhaps along with arguably its premature messaging shift to edge emitters. It appears that its external ...

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Incredible Shrinking 3DS VCSEL Margins Projected

August, 2018

With eventually five or more six-inch VCSEL fab manufacturers playing in the worldwide 3D sensing space, the generation of impressive margins will get increasingly tougher, as they are vying for what is currently only a single, available business segment. There has been a significant reduction in barriers to entry, including vertical integration no longer being a prerequisite (Lumentum being a prime example), although without internal production, it may not result in the lowest ultimate cost. While we do not anticipate that prices will necessarily be driven to the very unhealthy levels experienced by vendors, such as Oclaro in the past, in the computer mouse market, the chance cannot be totally ruled out. One can hope that the traditionally high pace of innovation in the consumer electronics space will manifest itself here as well, and help to separate certain suppliers from the pack by ...

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ams: Turnkey Play for Android VCSELs

August, 2018

We recently looked at the negative ramifications for VCSEL vendors supplying Apple for 3D Sensing (3DS) purposes, as the iPhone supplier has transformed the business to one, which is quite commodity-like in nature. However, there will be another category of buyers, which will not be contemplating just the purchase of VCSEL die. They are attracted more to a reference-designed, turnkey solution, which can be readily dropped into their phones. fibeReality would suspect that a fuller package of the optics and an IC could allow for meaningful differentiation, including minor refinements and customization options, and therefore, potentially higher margin generation. The Android makers appear to be leaning toward this type of offering, and a big beneficiary is expected to be ams. The impact of Apple getting a considerable lead on its competitors with 3DS should also facilitate the need for more ...

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Finisar/II-VI: Elongated 3D Sensing Ramp

August, 2018

At least a few analysts on the Street are asking: Why is the time for Finisar and II-VI seemingly so extended out for a considerable ramp-up in production of 3D-sensing VCSEL bare die? After all, both of these vendors have already made major investments in new manufacturing plants, and so, at least theoretically, they should be able to just start producing in a much bigger way, at a minimum, sooner than present expectations. Of course, in the past, we have discussed the challenges of the six-inch VCSEL size, which is intrinsic at the epi layer, and there is also the fragility of the wafers themselves. Another major hurdle appears to be that Apple has created a paradigm alteration with VCSEL suppliers being treated as me-too foundries, and thus, there is not much, if any, value placed on technology differentiation. In contrast, there is a great need for VCSEL gear in the traditional data ...

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Facebook: Co-Packaged Optics Conundrum

August, 2018

While we have recently pointed out that co-packaged optics will not be the great enabler of Silicon Photonics (SiPh), the concept of markedly shortening the distance between the switch and discrete optics could potentially be useful. As the problems in using SiPh are inherent to the technology itself, it has the additional disadvantage of the area available on the chip for a co-packaged approach being quite constrained. Although Facebook is a big fan of the concept, one gets the impression that there has been an inadequate realization on the part of the company that is not business as usual anymore when it comes to optical development. The unmistakable rupture of the ecosystem was almost exclusively caused by the actions of the hyperscale data center operators, including specifically by the social media giant itself, with its infamous, indiscriminate, and irrational call for an unsustain ...

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Silicon Photonics: Last Gasp of Hype

August, 2018

The optics industry is approaching 50 years since the concept of Silicon Photonics (SiPh) was mentioned for the first time. During an upsurge in excitement over the technology in 2014, we were accused by one or more prominent engineering executives in the space about having an agenda, after we expressed our doubts. As its use went to higher capacity, there was a movement away from monolithic devices, and eventually the tendency was for a lot of vendors to get carried away by calling any new solution, SiPh. For the purposes of this discussion, we will confine the definition to those chips, which have a modulator. We truly believe that the last large marketing buildup for SiPh involves the use of co-packaged optics. It has heavily been promoted by Facebook, and ironically appears to be the most difficult technical challenge to pull off to date before we expect SiPh to kind of burn itself o ...

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Finisar: New VCSEL Opportunities Possible

August, 2018

In June, this writer was honored to be a keynote speaker at EPIC’s meeting on “Singlemode vs Multimode Communication” in Kessel-Lo, Belgium. Our preliminary judgement is that we are cautiously optimistic about the prospects for Multimode Fiber (MMF) deployment growth within hyperscale data center operators. It is significantly based on the assumption that in striving to lessen latency and lower power dissipation, Microsoft’s plan to flatten its network by ultimately replacing the top-of-rack switch with a passive patch panel, and use MMF to connect the end/middle-of-row switch to a rack of wheel with servers, is adopted by all of the major hyperscale players. Obviously, such a transition would be good news to the two major, short-reach VCSEL transceiver vendors, Finisar and Foxconn Technology Group. However, given the delays that have become recently evident at the former in ramping up i ...

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Infinera/Coriant: A Survival Gimmick

July, 2018

Despite Infinera’s claims of significant integration between the two product lines, its purchase of Coriant is really about the continuing shortcomings of its PIC strategy, as well as its desire to remain an optical system player in the marketplace by ensuring an adequate amount of revenue. The story provided of transferring the PIC technology seems to have no more credibility than the similar tale it told in the past about adopting the same product strategy after its purchase of Transmode, as we anticipated. In order to be a credible end-to-end optical vendor, there needs to be a minimum of a billion dollars in sales in order to do the necessary development work. It may be a positive sign that David Heard, Infinera’s General Manager for Product and Solutions is definitely front and center this time in promoting this deal, rather than Dave Welch, Chief Strategy and Technology Officer and ...

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Viavi Still Overshadowing Lumentum

May, 2018

Despite the evident busting of the optical ecosystem, many of the analysts on the Street apparently continue to hold a special place in their hearts for Lumentum, mainly because of the current lead it has in what is perceived to be the attractive 3D-sensing VCSEL bare die market. While Viavi Solutions presently monopolizes 3D-laser filters supplied in that smartphone business, it is less sexy in nature and does not produce comparable sales volume. Nevertheless, fibeReality believes that Lumentum’s current strategy is heavily influenced by a continuing desire to outshine its former partner in which it had to take a backseat to in those years they were both part of JDSU. This rationale would explain Lumentum’s focus on the higher end of the traditional optical food chain, which enhances its visibility in being more on a par with the system vendors, especially in this age of open line syste ...

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Fabrinet: Nuggets Search in Optics Mess

May, 2018

All of the previous, unusual amount of commotion going on in the telecom/datacom optical market has been further complicated with the ban on sales to ZTE. Yet, it cannot be ruled out that there may be at least small opportunities for growth in the space for contract manufacturer, Fabrinet, as a result of the potential moves of the large component companies in dealing with the crisis of a major drop downward in margin generation in their traditional businesses. Of course, if the US federal government’s investigation into Huawei gets escalated to another level, then all bets are definitely off until after the bargaining of these chips is completed, as this writer has commented on earlier. Fabrinet would have the most to gain from possible shifts in direction by Finisar, which also has the benefit of having the least exposure to China of the four big US componentry firms. Of course, its new ...

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Calix: Long-Term Optical Powerhouse

March, 2018

During the first Market Watch panel at OFC 2018, MKM Partners’ Mike Genovese, one of a relatively few prominent investment analysts, who has real intimacy with the optical space, said that “he believes that companies, which will play instrumental roles in 5G backhaul and fronthaul, are under-appreciated.” In the past, we have expressed our view that Calix will be a large beneficiary because it was all-in on NG-PON2 from the beginning, and that the financial rewards will occur mainly after Verizon Wireless starts building its 5G fixed wireless network in a big way. The supplier will have sufficient scale to go after many large accounts (without needing to go through Ericsson) because we believe that next-generation solution will likely become the de facto standard for much of the world. (Still, it should be noted that Calix will support an XGS-PON optic on the same system.) We fully antic ...

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Finisar: Recourse in Hyperscale Space

March, 2018

During the Q&A session at the OIDA Executive Forum two years ago, this writer asked a Microsoft executive whether his company, was being too clever by half in making demands, such as open line systems, which could help lead to the destruction of the optical ecosystem in 10 years. As it turns out, our projection for such a calamity was way too optimistic, as there have been numerous, unprecedented efforts by these hyperscale data center operators to drive pricing down on a growing number of devices to unprofitable levels. Now they will be forced to fund more of the technological developments for their networks themselves, as there will be scant capital available, especially for as long as a couple of years at the largest optical component vendors. These operators will probably need to pay a high premium for the latest piece-parts for an indefinite amount of time because there will be enou ...

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Ciena Can Get Away With 400G Puffery

March, 2018

Ingrained in the “Nortel” legacy in high-end optics at Ciena is the obsession to jump to the next bit rate as soon as possible, at a minimum from a marketing perspective. In the distant past, the Canadian company leapfrogged to OC-48/STM-16, which led to an unusually short life in the overall marketplace for OC-12/STM-4. Later at least partially spurred on by MCI, which made the mistake of jumping to bleeding-edge technology too soon in deploying dispersion-shifted fiber, which favored TDM over DWDM solutions, Nortel became the dominant player in OC-192/ STM-64. Of course, when it came to higher rates, Nortel was the first to market with coherent 100G, and had a big lead technologically early in the game. However, even after it became part of Ciena, there was a reluctance to talk about the huge number of lower rate, 40G ports being shipped on the 6500. So, it is no surprise that Ciena is ...

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Lumentum + Oclaro: Ecosystem/Profit Bust

March, 2018

For a while (we mentioned a cloud bubble for components in April, 2015), fibeReality has been discussing the idea of a collapsing optical ecosystem principally as a result of the efforts of the hyperscale data center operators to increasingly push componentry down to unprofitable levels. We currently project that the really positive impact of optics supporting 5G wireless (despite the very aggressive agenda of Verizon Wireless on infrastructure including metal poles, antennas, hardened cabinets, fiber, etc.) as well as the ramp-up of 400G capacity (in spite of the widespread hype of that data rate at OFC 2018) may not occur at least until 2020. So, regardless of the rationale provided by Lumentum’s President and CEO, Alan Lowe, the timing of the vendor’s acquisition of Oclaro this month was not an accident (especially with the industry waiting so long for substantial consolidation). It i ...

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Finisar: An Attack Plan vs Broadcom

February, 2018

Will Finisar engage in all of this development work on VCSEL bare die in its new fab in Texas just to take advantage of it for 3D-sensors applications? Why should not the vendor strive harder and take on Broadcom directly with possibly higher quality (and perhaps even functionally-differentiated, especially as this equipment continues to evolve) VCSEL ICs aimed at the traditional transceiver/active optical cable space, while offered at a reasonable price? Our belief is that Broadcom commands an extremely high premium for these devices and that there was no interest by the company in going after the apparently less impressive margins expected to be generated in the smartphone sector. At a bare minimum, Finisar will be able to potentially lower the internal costs of its own VCSEL modules being delivered to data centers, as a result of higher chip volumes for apps across the board. Our sugg ...

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Oclaro: No Longer Counting on Buyout

February, 2018

Evidently, Oclaro is starting to think outside the box in selecting Walter Jankovic as its new President, Optical Connectivity, as he was formerly with Contract Manufacturer (CM), Celestica. It seems to indicate that Oclaro’s confidence level in getting acquired has gone down substantially, as it will need to look for diversification opportunities, if it remains an independent entity. The move appears somewhat similar to Fabrinet, another CM, which was already in the process of aggressively getting into new businesses, when it chose its new CEO from Sanmina. Even before it became really clear that there would be local Chinese production of new types of optical components, fibeReality started about eight months ago to discuss that without a buyout, [Oclaro] was stuck with a story line based on its “self-perpetuating optical cycle" rhetoric, including a heavy emphasis on supporting 5G wir ...

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