Market Insight

Optical DCI market grew 26 percent, reaching $2.6 billion in 2017

March 29, 2018

Heidi Adams Heidi Adams Senior Research Director, Transport Networks
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Following is the latest information and insight on optical networking applications, including the data center interconnect (DCI) market, from IHS Markit. 

Year-over-year optical data center interconnect (DCI) hardware revenue grew by 26 percent globally, reaching $2.6 billion in 2017. By 2022, IHS Markit predicts this market will exceed $5 billion in annual sales, and represent close to 30 percent of all wavelength division multiplexing (WDM) equipment spending.

“The optical DCI equipment market experienced very strong momentum in 2017,” said Heidi Adams, senior research director, IP and optical networks, IHS Markit. “Moving forward we are forecasting continuing growth, as service providers, internet content providers and enterprises make additional investments to connect expanding and proliferating data center facilities.”

Within the optical DCI market, the compact DCI transport equipment sub-segment grew briskly by over 200 percent in 2017, reaching $483 million in revenue. This segment will continue to grow over time, as digital transformation continues at enterprises worldwide and as more and more content — including enterprise applications and video — is hosted and delivered via the Cloud.

Compact DCI equipment is also notable as it represents a broader industry trend toward optical equipment disaggregation — where different functions in the optical network can be addressed by open hardware platforms and linked together through software-defined networking (SDN) controllers and applications. “As disaggregated equipment configurations get proven out in DCI applications, we can see usage expanding to address other areas in metro optical and enterprise applications,” Adams said.

OTN transport plateaus as “OTN-free” platforms emerge

Total optical transport network (OTN) hardware sales totaled $11.3 billion in 2017, up 4 percent year over year. Although OTN switching continues to grow as a percentage of total optical equipment sales, OTN transport has seen a significant decline.

The emergence of optical DCI, and the influence of the web-scale internet content providers (ICPs), account for a significant part of this decline. While traditional carriers have adopted OTN, the ICPs have standardized on Ethernet as the preferred technology providing sub-wavelength aggregation and switching. “With no legacy TDM traffic or connection-oriented services to support, the business case for introducing OTN services, OAM and/or OTN switching infrastructure is less apparent,” Adams said. “As a result, a new class of ‘OTN-free’ WDM equipment, optimized for the requirements of web-scale and data center operators, has emerged.”

P-OTS maintains steady growth

Packet-optical transport system (P-OTS) segment revenue reached $2.5 billion in 2017, increasing 10 percent compared to the previous year. In the future, as DCI becomes a more important application for optical networks, there will be a pull-through effect for P-OTS platforms. For service providers offering DCI as a service, or offering a mix of dedicated Ethernet and wavelength services for DCI, the ability for P-OTS equipment to support both make it an attractive platform.

Optical report synopsis

The biannual IHS Markit DCI, OTN and packet-optical hardware report provides worldwide and regional vendor market share, market size, forecasts through 2022, analysis and trends for OTN transport and switching hardware, packet-optical transport systems and data center interconnect equipment.

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