SATISFYING DEMAND FOR OPTICAL COMPONENTS
This article first appeared in Optical Connections Magazine.
With fibre network rollouts continuing to accelerate, data centres proliferating and the demand for bandwidth increasing exponentially, suppliers of optical transceivers could experience component shortages. Optical Connections editor Peter Dykes discussed some of the most pressing supply chain issues and how they might be alleviated, with industry veteran, serial entrepreneur and CEO of Westbury Photonics Robert Hughes.
THE MARKET
Things have changed a lot in the transceiver market over the last 15 years or so. Components that would traditionally have been seen as niche products and only available as branded products from the likes of Cisco, Juniper Networks and Nokia can now be sourced from a number of manufacturers and distributors. However, factors such as a lack of local technical support and procurement difficulties could impact on the speed with which networks can be rolled out. Indeed, Bristol, UK-based Westbury Photonics, one of the more recent entrants to this market sector, was set up to address just such issues. Robert Hughes, the company’s founder and CEO says, “What I’ve seen is the emergence of compatible optical components and modules in particular, being readily available. The challenge for the distributors today, typically the ones in UK, Europe and also North America, is to meet the need to have available components that companies can buy from distributors in the UK, Europe and North America, which are supported by native English speakers, that have been tested within the UK,
Europe and North America, and that are available from stock.” Hughes says these particular issues were highlighted when it took him four days to get a quote for a single 10G SFP+ module and was required to supply highly detailed company information before making a purchase. As a consequence, Hughes set up Westbury Photonics to distribute optical components irrespective of the number required and the level of local support required.
He says, “We’re seeing a much stronger move towards the commoditisation of optics, as the demand for bandwidth increases and fibre to the home becomes more pervasive. We’re going to see IT managers requiring anything from 500 to 1000 [transceivers], or much smaller orders from IT companies and consultancies, who are providing IT services to smaller businesses. There are also the IT managers who are managing networks within SMEs and middle enterprises, which typically employ around 500 to 1000 people, as well as people who literally will be supporting their own networks. All of them are looking for components that are compatible, that are cost effective, that they trust, and where they can get local technical support on the other end of the phone. There’s another group that is seeing a demand for greater bandwidth. The IT managers and consultancies, who are having to put in multi-gigabit switches and supply pluggable transceivers, but they have got to do that in a very cost-effective manner. I saw these two groups emerging and felt that there was a great opportunity for me to step in there.”
THE SUPPLY CHAIN
On a much larger scale, a relatively new development is that the likes of Microsoft, Facebook and Alibaba, who have the resources and finances, are building their own international fibre network infrastructures, work which in the past would have been the done by the likes of Alcatel. In addition, 5G rollouts are continuing apace and 6G is on the horizon, so the potential for transceiver shortages is very real. According to Hughes, part of the solution is component aggregation. He says, “We’ve seen that in the UK, Europe and North America there is an accelerated demand for components and systems, and that will continue. What we’re seeing now is that it’s not so much about having a tuneable laser, or about having a DSP, it’s actually about having both. There are shortages now around the sub components such as the ICs and chips that go into those modules. The question then becomes, are we ever going to get to a point where we will be able to satisfy demand? I think the reality is that there will be shortages, but how long will it take? That really depends how quickly the fibre rollouts continue and the requirement for components and subsystems to support all of that.
So, we’re starting to see a much stronger need for a highly integrated supply chain, and it’s not just from the making of lasers or ICs, you need that right through the system and the rollout of that as well.”
It’s not just potential component shortages that could slow things down however, there are other factors involved apart from supply chain issues, there are the much-reported skill shortages, geopolitical problems and of course, the impact of Covid-19.
Hughes says, “Obviously, we’ve got to get out of this pandemic and everyone’s got to get back to work, but I think productivity is going to have to increase to the point where we can actually get slightly ahead of the curve. However, I don’t know how the geopolitical aspects will play out. I think that’s a big unknown at the moment in terms of the US and China, and maybe even Russia. We’ve still to see how that will work out, but there has to be partnerships right the way through from lasers through to modules, through to systems, right the way through to the actual rollout. I don’t think we’ve ever experienced that before, but I think that part of it is going to become a lot more critical. What we will see I would say, is at the beginning, probably those who are willing to pay a little bit more, have the better relationships, and are able to pull together a very complete supply chain right away, from the availability of lasers, ICs and component modules and the way they get rolled out, will be the most successful. This is the end-to-end supply chain relationship that’s going to have to happen.
LASERS AND DSP’S
A significant element of the supply chain consolidation process involves creating partnerships with other manufacturers. Hughes argues that supply chain issues can be alleviated further if companies consolidate access to their optics and DSP supplies, either by acquisition or by a careful choice of partners.
According to Hughes, there are two things that are problematic at the moment. One is getting high-quality optics, the other is getting DSPs. He says there are only a handful of players who actually have highly tuneable lasers on the one hand, and on the other, there are only a few DSP vendors. As we’ve been seeing over the last few years, there’s been a big race for companies to add DSPs to their portfolios and while the likes of Nokia and Huawei have their own, Cisco’s purchase of Acacia and
the acquisition of ClariPhy by Inphi, and Inphi by Marvell, means there are fewer suppliers to choose from.
He says, “What we’re seeing now is that it’s not so much about having a tuneable laser, or about having a DSP, it’s actually about having both, so if you’ve got both, you’re in a reasonably good position. If you’re unfortunate enough to only have one or the other, then you’re potentially at the mercy of whoever, in this case, has a DSP, who would want you to have access to that and for how long. What we’re seeing now a big scramble for companies to get their arms around both elements. For example, Cisco has both, Marvell is pretty close to having both, but not quite at the performance level that Cisco has, and there are others. We also see a lot of movement in the industry by those ready to protect their own markets, such as HiSilicon. In China, they have tuneable lasers that are coming along, and that’s another key part of the puzzle. I would say at the moment, the only other player outside of these who would be willing to look at engaging with a company on a DSP would be someone like NEL, which is up there with the others. So there seems to be a much stronger move now around how to get secure access and availability in a way that’s not going to hamstring your business. Now, it’s much more about relationships and how you secure your supply chain, and it’s not just supply chain in terms of a DSP. It’s a supply chain, around the DSP, around the optics and around your packaging partner. We’re also starting to see a lot more focus towards having a capability within a particular region, and part of that is because of the geopolitical situation that’s going on in various parts of the world. Right now. I think what people are doing is they’re saying, look, Covid has happened, we have a massive shortage of supply within the market and everyone is in catch up mode right now. But as far as I can see, there’s a lot more focus around supplying your near term, closest partners first, before starting to expand. We’re catching up, but will we ever really get there? Let’s put it this way, I’m not convinced we will get there quickly.”