Lower Prices Boosting 10-GigE

The 10-Gbit/s Ethernet market could be poised for a growth spurt, as prices are getting down to the critical level to kick up some serious demand, according to the latest Heavy Reading report.

That's the conclusion of "10-Gbit/s Ethernet Components: A Heavy Reading Competitive Analysis," which was published last week. The report breaks down the 10-Gbit/s market, looking at transceivers, transponders, and chips, covering 225 devices from 38 vendors. (See Cheaper Chips Drive Sales.)

Chip vendors "shipped as many 10-Gbit/s Ethernet devices in 2005 as they did in the preceding three to four years combined," analyst Simon Stanley writes in the report. "This activity at the components level means significant growth in 10-Gbit/s Ethernet port shipments will accelerate, as the cost reductions work through the supply chain."

That's good news to some, because while volumes have been enough to fuel some cost reductions, they've been too low for some suppliers' tastes.

The ultimate demand for 10-Gbit/s Ethernet has never been in doubt, particularly when it comes to short-reach environments such as data centers or carrier hotels. The problem is that pricing has stayed high enough to keep some customers from diving in wholeheartedly.

"Its deployment has lagged behind the forecasts because the prices were higher than people expected, or higher than the value proposition," Finisar Corp. (Nasdaq: FNSR) CEO Jerry Rawls tells Light Reading.

Of course, 10-Gbit/s Ethernet isn't completely stalled -- otherwise Force10 Networks Inc. wouldn't still be around. And transceiver modules for 10 Gbit/s are fueling the IPO filing of Optium Corp. (Nasdaq: OPTM), although that company sells to the Sonet market in addition to Ethernet. (See Optium Files for $100M IPO.)

For each generation of Ethernet, the magic number has been between 3 and 4 -- that is, the next speed grade starts to take off when its price falls to three or four times the previous generation's.

By some metrics, 10-Gbit/s Ethernet is finally getting there. Prices for 10-Gbit/s ports have only recently dropped to less than $10,000 per uplink -- which, with 48-port switches on the market, translates to less than $200 per user. That's finally an acceptable premium over the $50 to $100 per port for Gigabit Ethernet.

Suppliers, likewise, are reporting a bounty of shipments. "We expect to see 10-Gbit/s Ethernet shipments nearly triple this year from last year," Mitch Kahn, Quake Technologies Inc. VP of marketing, tells Light Reading.

If volumes didn't drive those prices down, what did? It's the chip technology -- PHY prices are one-tenth what they were in the first generation of 10-Gbit/s Ethernet, Stanley notes.

Modules are lowering systems prices, too, by getting smaller. The industry started with the 300-pin multisource agreement (MSA) and has been moving through smaller module generations since -- to Xenpak, then X2, and eventually XFP.

And vendors are already working on the next step beyond the XFP transceiver, called SFP+. It's even smaller -- Stanley reports it's one-third the size of an XFP -- and pluggable. It's expected to bring prices down even further by lowering power consumption while increasing the potential port density of equipment. (See XFP Module Gets a Shrink.)

Quake has declared itself an SFP+ frontrunner, having recently announced the necessary PHY chip for such a module. Not surprisingly, the company now sees a bigger future for SFP+ than for the long anticipated XFP MSA. "It looks like that's going to be displaced in favor of SFP+," Kahn says. (See Quake Intros SFP+ PHY.)

That may be a bit hyperbolic, given SFP+ is only starting. Stanley notes 50 XFP modules are available from 13 vendors. XFP "is already being used by OEMs across the industry for a wide range of applications," he writes.

The report compares the offerings of 38 vendors, noting that Finisar and Broadcom Corp. (Nasdaq: BRCM) offer the broadest range in transponders and PHY chips, respectively.

— Craig Matsumoto, Senior Editor, Light Reading

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