Optical modules, one of the hot spots of capital market hype this year, may be second only to AI in popularity. The concept of hype is “CPO”, that is, photoelectric co-packaging technology. This technology is expected to achieve low energy consumption and high energy efficiency in high computing power scenarios, and provide better computing power infrastructure for AIGC (AI generated content) applications such as ChatGPT.
Optical module: a data transmission photoelectric conversion node
Function and structure of optical module
The optical module undertakes the task of photoelectric signal conversion in the network connection, and is responsible for converting the electrical signal into an optical signal at the sending end, and then converting the optical signal into an electrical signal at the receiving end after transmission through the optical fiber.
Optical module is mainly composed of optoelectronic devices TOSA/ROSA, functional circuits and optoelectronic interface components. The optical transceiver component TOSA/ROSA is the core part of the optical module.
Optical module cost composition
The cost of optical module BOM mainly includes optical components, circuit chips, PCB and structural parts. Among them, optical devices accounted for 70%+ of the cost of optical modules. Looking at optical devices specifically, laser-based transmitting devices accounted for nearly half of the cost of optical devices, and detector-based receiving components accounted for 32%. These together account for 80% of the cost of optical devices.
In 2021, the total market space for optical modules was US$9.2 billion, the market for optical electrical chips was US$2.4 billion, the market for optical devices will be US$1.3 billion, and the market for optical components will be US$800 million.
Industry development trend: high speed, low cost, low power consumption
The upgrading of high-speed digital communication optical modules and the release of new switches complement each other. The ever-increasing rate requirements of data centers are the main reason for the high-frequency upgrade of optical modules.
With the development and integration of optoelectronic devices, its performance and transmission bandwidth have increased, optical modules have higher transmission rates and smaller sizes to adapt to different usage scenarios, and packaging methods continue to evolve. Smaller packaging and power consumption means that the optical module has a higher port density on the switch, and the same power can drive more optical modules.
Methods for upgrading the optical module rate
1. Increase the bit rate of a single channel. There are two ways to increase the bit rate:
- Directly increase the baud rate;
- Keep the baud rate unchanged and use a higher modulation and coding format.
2. Increase the number of channels;
Traditional optical module modulation is mainly based on NRZ (not return to zero), and the high/low power of the laser corresponds to binary 1 and 0 signals respectively. The judgment of PAM4 optical signal power is divided into 4 thresholds, below the lowest threshold is 00, between the lowest and middle threshold is 01, between the middle and high threshold is 10, and exceeding the high threshold is 11.
Data center structure upgrading – drives the volume and price of optical modules to rise
Data center optical modules are constantly being upgraded and are moving towards 800G. The rapid growth of traffic data has continuously promoted the upgrading of data center architecture. At present, data center optical modules are rapidly transitioning to 200G/400G speed. 400G is the latest standard for high-speed Ethernet client interface.
With the imminent large-scale deployment of 400G optical modules, and the continuous acceleration of network bandwidth and performance requirements, data center interconnection 800G will also become a new requirement, and will be applied in ultra-large-scale data centers, cloud computing and artificial intelligence computing power centers in the future middle.
Active copper cables for short-distance transmission have competitive advantages
Active copper cables refer to copper cables that use external energy to enhance signal transmission distance. DAC passive copper cable has short transmission distance, AOC active optical cable has high power consumption and cost, and active copper cable has long application distance, good robustness, lower cost and lower power consumption, which is very suitable for the increasing urgent need of green energy saving and cost control of large date centers. There are two types of active copper cables on the market: ACC and AEC.
ACC (Active Copper Cable) is an active copper cable that uses the Redriver chip architecture to adjust the gain through CTLE equalization at the Rx end. Generally speaking, it is more like an active cable that amplifies analog signals.
AEC (Active Electrical Cable) is a more novel active copper cable using the Retimer chip structure. This active copper cable not only amplifies and equalizes the Tx and Rx ends, but also re-shape the signal at the Rx end.
Industry: The market continues to grow rapidly
Optical module market size
Optical module market structure: market demand concentrates on cloud giants
Cloud vendors are the main customers in the data communication market, accounting for about 60% of the market. Moreover, the growth rate of demand in the data communication market is expected to continue to be higher than that of the telecommunications market, and the market share is expected to continue to increase.
The demand is concentrated on top customers, and the world’s top five cloud vendors occupy a major market share. According to LightCounting’s forecast, the total share of the top five cloud vendors is expected to exceed US$3 billion by 2023.
Competition pattern of optical transceiver market
The market share of Chinese optical module manufacturers is expanding rapidly. According to the total sales of head optical component suppliers according to LightCounting statistics, the global market share in 2010 was about 2.8 billion, which will increase to 8.7 billion US dollars in 2021, and the market share of domestic manufacturers exceeds 50%.
Among the top ten optical module manufacturers in the world in 2021 , the number of Chinese manufacturers will rise to 5. Looking back at the development history of the optical module industry in the past 10 years, the share of Chinese manufacturers continues to increase.
From the perspective of the scale of mainstream manufacturers of optical modules in 2021: the American company II-VI (Finisar) occupies the first place in the global market, and its optical module business revenue reaches about 12.3 billion yuan, accounting for 17% of the market share; In Chinese market, InnoLight ranked first, with optical module revenue reaching about 7.3 billion yuan, followed by Accelink, Huagong Tech, Eoptolink, Borui and CIG. Overall, Chinese optical module manufacturers have already taken a place in the global market share.
Judging from the comparison of the gross profit margins of various optical module manufacturers in 2021: the gross profit margins of optical module manufacturers are not much different, and are generally high, with an average level of about 25%, and the Chinese manufacturer Eoptolink is more than 30%. The gross profit rate of optical modules is closely related to the self-sufficiency of upstream optical chips. As the self-sufficiency rate of optical chips increases among major manufacturers, the overall gross profit rate will also increase.
Optical transceiver market growth elasticity
Due to the large differences in the topological structures of different AI data centers, we calculated the demand for optical modules driven by AI in a typical situation. When the number of GPT applications reaches 1 billion monthly active users, we estimate that 69.4 A100s are needed. Assuming that one A100 corresponds to the demand for 3 optical modules, it corresponds to the demand for about 2 million 800G optical modules.