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FEATURE OPTICAL COMPONENTS


data centre transceivers for a dollar per gigabit – an extremely tough target that nevertheless has resulted in transceiver prices dropping by a factor of 10 in just two years. ‘Our customers are changing and


therefore components companies have to figure a way out of how to adapt to those new customers,’ commented Oclaro’s Adam Carter. ‘Everybody in this industry is now not only dealing with a number of equipment manufacturers, now we’re dealing with their end customers as well in some cases. Not only do they want faster, cheaper and lower power, but they also want it quicker, as in time to market.’ In his view, components and


module vendors have been trying too hard to please customers. ‘I think we’ve all been charging down the cost curves to gain market share and to gain top-line numbers, but it doesn’t necessarily mean we’ve done the right thing for the industry,’ he said. ‘When you have big customers who have big volumes and they’re asking you for large cost reductions in order for you to gain share… a lot of people don’t think the consequences of what that could do to their business model.’


Cranking out products Tere are three levels of R&D investment that optical components companies need to make. Te first is the investment just to crank out products in order to stay in business. Te second level is the investment required to keep those product lines profitable. Only when those first two requirements are taken care of can vendors think about investing in advanced technologies, such as 400G or one terabit. ‘It’s your product development, of


course, that generates the revenues that keeps you alive as a company, so there’s always a tendency to spend most of the money on the product development. Te product mix is very big – we have to do many different types of device to generate our revenue – so the development portion is very high in this industry,’ Julie Eng commented. She continued: ‘What we have to do


16 FIBRE SYSTEMS Issue 11 • Spring 2016


to keep today’s margin dollars, so that we still have money to invest, is that we have to decrease the cost of all those products, and that in of itself is a technology development. It requires a lot of quite high-level technology investment that is probably not apparent to people that don’t have to decrease costs, decrease power, month over month, year over year. So that is already very challenging.’ Over the past 10 years, transceiver


pricing has tumbled, but this has not been compensated by the increase in volume over that period of time, according to Eng. As several suppliers start shipping the same product in volume aſter reaching high yields, the pricing falls too fast. Te upshot is that the periods of high profitability in the product lifecycle are too short. Substantial R&D efforts are


required as vendors search for ways to take the cost out of a product. ‘All of our manufacturing is in Asia, almost all of our supply base is in Asia, there’s


We’ve all been charging down the cost curves to gain market share


not much you can take out by beating harder on your vendors. You’ve got to use technology,’ said Eng. Against that backdrop, vendors


have to look ahead to the next- generation of technology that will keep their business relevant in three to five years’ time. ‘Sometimes this means developing an entirely new class of lasers that nobody in the world has ever made before; in some cases, where people are still arguing over whether it’s physically possible to do it or not. Tat’s how close we are to the edge of technology,’ she added.


Wise choices What actions can optical components and module vendors take to help maintain the necessary levels of R&D investment into next-generation products? First and foremost, they are


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across many market segments, we were into many, many different types of products, and the issue was that we just couldn’t do everything that the market needed as a broad supplier. So as part of our recovery plan we’ve been looking at where we can differentiate with the technology we have in-house, and where does that give us the best opportunity to support customers and to have a good financial business model. But it means that we’re not into everything and that’s key.’ Another way for optics vendors to


Julie Eng, Finisar


forced to be more focused in how they spend their R&D dollars. ‘I think that as a company the only


thing we can do is try to make the right decisions on what to invest in,’ said Eng. ‘We had to come to the conclusion we can’t do everything; you pick the things you’re going to do, and you hope you choose wisely.’ Oclaro’s Carter agrees. ‘You have to


be clear, particularly on the enterprise side of the house where there are so many companies that have their own view of form factors. What we have to do is select, of the companies pushing different package styles, which ones are the ones that are going to win and have the biggest market share, and enable you then to drive some scale once the product gets released into operation.’ Tese forces push companies away


from being generalists, he notes. ‘I think the time of a supplier who basically covers everything is probably going to be very difficult going forward, particularly with the amount of different requirements that are coming from the end customer rather than the network equipment manufacturers. I think you’re going to see smaller companies that are highly focused in certain areas.’ A good example of that is Acacia, who concentrated on one module initially, the 100G coherent pluggable CFP, although they are now branching out. Oclaro went through these issues a few years ago, Carter says. ‘We were


make effective investments is to develop a platform approach that spreads the cost of technology development across multiple products and drives economies of scale. ‘If I can make that one laser that goes into all the products of a certain type, then it means customisation comes later on in the cycle, and it generally is easier to customise,’ Finisar’s Julie Eng explained. Vertical-cavity surface-emitting


lasers (VCSELs) are a great example, she says. Te new 25Gb/s devices, which recently reached the market, are needed for 100 Gigabit Ethernet short reach, called 100GBase-SR4; they’re needed for 25Gb/s SFP+ transceivers; they’re needed for wireless CPRI (Common Packet Radio Interface); and they’re needed for 32G Fibre Channel; so they’re needed across multiple market segments. Sometimes, technology can be


reused. ‘You might do something for a customer that then you can spin off to other market segments,’ said Carter. ‘Te CFP2-ACO [analogue coherent optics] module is a case in point. I think if you spoke to the people who initially put that idea together three years ago, they would have told you it was long haul, metro maybe. Tey wouldn’t have told you that there was a data centre interconnect market.’ Tis is where the lure of silicon


photonics comes in, as it promises to be a platform technology that, once perfected, could lock down the cost of developing future products. However, the initial hurdle – the investment into advanced technologies – has


Finisar


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