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Optical DCI Market Grows Nearly 50% in 2016

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The optical data center interconnect (DCI) equipment market was afire in 2016 as service providers, internet content providers (ICPs) and enterprises invested in a big way to interconnect expanding and proliferating data center facilities. The global optical DCI market totaled $1.9 billion in 2016, growing 49 percent over the prior year. The big story in 2016 was the emergence of a new compact DCI segment characterized by wavelength-division multiplexing (WDM) platforms designed and optimized for deployment in data center environments. Nearly all the major optical equipment vendors delivered new compact DCI platforms to market in 2016, kicking off a fiercely competitive battle for ICP spending.

The compact DCI segment drove $154 million in revenue in 2016, representing 8 percent of the overall optical DCI market—and a massive 285 percent growth over 2015. Meanwhile, the traditional DCI equipment segment saw strong growth of 41 percent year over year in 2016, which may have been somewhat muted as sales of compact equipment started to kick in.

With continuing data center growth, we look for the worldwide optical DCI market to hit $4.5 billion by 2021—a five-year compound annual growth rate (CAGR) of 18 percent.

“OTN-free” Optical Hardware for DCI Limits OTN Dominance in WDM The optical transport network (OTN) hardware market came to $10.7 billion in 2016, an increase of 8 percent year over year. The emergence of OTN-free compact DCI platforms, combined with sales of WDM equipment for common public radio interface (CPRI) fronthaul applications, signaled the start of a reversal in OTN as a percentage of total optical equipment.

OTN transport and switching capabilities were de facto in all new WDM equipment up until 2016. Close to 80 percent of all optical equipment revenue and 90 percent of all WDM equipment revenue last year was tied to OTN-capable equipment. The rise of the ICPs as a tour de force in optical equipment spending has put a new limit on OTN’s dominance of the WDM market. ICPs have no need for OTN because they have no legacy Synchronous Optical Networking (SONET) and Synchronous Digital Hierarchy (SDH) traffic to support and are aligned to Ethernet as the base packet transport and switching technology. As a result, OTN as a percentage of overall optical equipment will peak in 2019 and then decline somewhat in subsequent years.

P-OTS Sees Steady Growth
Revenue for the packet-optical transport system (P-OTS) segment was $2.2 billion in 2016, up 6 percent from a year ago. We expect P-OTS to continue to grow for deployments supporting legacy and more modern Ethernet and wavelength services. The native Ethernet capabilities in P-OTS also give it a role to play in DCI network deployments.

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