Active Optical Cabling Markets: 2013 and Beyond Executive Summary Published March 2013

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Active Optical Cabling Markets: 2013 and Beyond

Executive Summary
E.1 Changes Since Our 2011 Report
E.1.1 Everything Changes to Remain the Same

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CIRs basic qualitative conclusions about the structure and future of the active optical cabling (AOC) market has not changed that much since our 2011 report, or indeed our report before that. We continue to believe that AOCs will obtain most of their near-term revenues from larger corporate data centers where AOCs are seen as the most effective way to upgrade to fiber, especially in the context of InfiniBand. This is a real business and will continue to be a significant growth area. However, it is inherently never going to be a large business. There are just so many data centers in the world or ever will be. The reason why cable assembly firms and related businesses get excited about the AOC business is that many of them believe that AOCs will eventually find their way into much larger addressable markets that provide very high-volume opportunities to a much greater degree than IB ever could. These include consumer electronics and mainstream computing, where the number of interfaces shipped is in the hundreds of millions. The other area where AOC makers continue to see a future is in digital signage.
E.1.2 How Growth and Prices Have Changed Since 2011

All of the above could have been written in our 2011 report and indeed was. Nonetheless, in 2012 we are less bullish in this report than in our previous report and this is reflected in our forecasts. The biggest change comes as a result of our reducing the prices associated with AOCs. When we first started covering this sector, information on AOC pricing was hard to come by and the pricing that existed seemed to indicate that AOCs fell into the category of expensive cable assemblies. In 2013, the prices have dropped dramatically, AOCs have become widely available, and pricing information is also easy to get. The evidence here is that AOCs are rapidly become commoditized, which is not necessarily a good thing for the AOC business and will most probably force AOC vendors to attack mass markets with a new aggressiveness. The other big change from the CIR 2011 report on AOCs is that we have reduced penetration numbers and in some cases the addressable markets themselves. This is primarily because the worlds economic pain has continued longer than we expected in 2011. The one exception to this is in the digital market, which looks more exciting than it did in 2011.

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E.2 AOC Opportunities in the Data Center There is no getting away from the fact that the short-term prospects for revenues from AOCs depends on developments in the IT and HPC sectors. However, these prospects are clearly dampened by the likelihood that growth in IT spending will be weak in 2013 and perhaps for a few years after. Worse, much of the expected growth in IT spending in 2013 will have to do with mobile communications that have very little to do with AOCs. And the big data booma trend that could certainly drive AOCsmay not make a difference until 2014 or later. Page | 2 Data center managers are currently trying to make the best of what they have and AOC expenditures are going to be hit by this, in CIRs opinion. On the other hand, if they are positioned and marketed correctly, AOCs can be sold as a way to optimize existing infrastructure; by, for example, providing higher data rates between storage facilities and servers. This may turn out to be a market differentiating feature for some AOC products.
E.2.1 Big Data Boom?

AOCs involvement in the big data story is miniscule, but there can be no doubt that the growth in data traffic as the result of social networking, regulatory requirements, interactive video, the Internet-of-Things (IoT) and so on, will require to scale up data centers and/or build entirely new ones. This trend will surely mean new fiber in the data center andsince AOCs are a good entry to local fiberbig data will be good news for AOCs. A specific positive for AOCs, CIR believes, is that the big data trend may hit some data centers like a tsunami and there will have to be major upgrades and new centers built quite quickly. But the full force of this trend may not really be felt until there is a significant recovery in the worldwide economy in (perhaps) 2014 or 2015.
E.2.2 Co-Location and AOCs

Co-location is leading to large new data centers being set up, and each of these represents a potentialand fast growingmarket for AOCs. However, there is an important caveat here. Some of the firms that recently moved into leasing out data centers and related services are looking at very rapid returns on investment and are achieving this goal to some extent by using the lowest cost hardware available. CIR believes that AOCs may not be able to qualify for inclusion in such cases.
E.2.3 Market and Product Trends for AOCs in the Corporate Data Center

With all that said, specific trends in the data center that impact AOCs havent really changed all that much in three years or more. AOCs got their start in the CX4 replacement market, but today CX4 cable shipments are very low and, while there a legacy business to be had in this space, this is not a business for the future. In any case, today the network manager who decides that he or she wants

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to get rid of CX4 and go with fiber may not always choose AOCs, but may go the whole hog and opt for a complete port upgrade to QSFP or CFP. While in theory an AOC could serve any 10-GigE interface, there are some for which it seems a real market opportunity. Clearly, these include the popular SR variant. AOCs might also do well as a long-term replacement for the so-called SFP+ Direct Attach copper variants which have become extraordinarily popular in recent years. As their name implies these are copper cables, so an AOC takeover in this space would be the CX4 story redux. However, Direct Attach probably has more staying power than CX4. Page | 3 It also seems that 2012 was a very good year for 10GBASE-T and that the expectations going forward are for sustained growth. Since there is obviously no chance that network managers who have just installed 10GBASE-T are suddenly going to change their minds and buy AOCs, 10GBASE-T may not be very good news for AOCs. On the other hand, only part of the data center market (although a fairly large part) is addressed by 10GBASE-T; while the spec addresses up to 100 meters, some cabling solutions based on 10GBASE-T operate at up to half that distance. Virtually all AOC vendors stake their major volume anticipation on QSFP+ products, which are expected to dominate markets of 30 meters and under for several years. One thing is certainQSFP+ is a package that provides benefits to copper and connectorized optics as well as to AOC, and even optimistic AOC vendors do not expect to capture the majority of sub-50-meter enterprise and high performance computing (HPC) markets.
E.2.4 Opportunities at 40/100 Gbps

When we wrote about 40/100 Gbps in our 2011, this technology (for the data center anyway) was still very speculative. Today it is very much in the mainstream with many important vendors beginning to supply boxes with 40/100 Gbps ports. Whatever 40/100 Gbps standards eventually prevail, AOC cabling can still represent a viable alternative to discrete fiber-optic cable. However, CIR continues to believe that AOC vendors see 40G links as both easier to implement and as providing more revenues in the short-to-medium term than 100-Gbps links; there are plenty of 40-Gbps AOCs around. The 100-GigE market is probably a place where AOC firms can make themselves a little bit of money now with a lot more to be made in the long run. The point here is that eventually 40 Gbps is going to go away and 100 GigE will prevail because of falling component costs. The big question is when? Nobody really knows the answer to that question. In any case, we are not seeing many signs of 100-Gbps AOCs appearing on the market. AOC vendors, incidentally, also see no problems in extending their products to support very high data rate versions of InfiniBand that may appear in the future.

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E.3 Opportunities for AOCs in the Computing, Consumer Electronics and Display Applications The PC and consumer electronics world has an embarrassment of riches when it comes to available interfaces and cabling types. So why do we they need more? And even if they do, why do optical connections have to be involved. Maybe they dont need more and maybe optical connections are not needed, but the AOC firms keep hoping, because, as we have already noted, AOCs in the computer and consumer electronics sectors would mean the addressable market for AOCs swelling by orders of magnitude.
E.3.1 AOC versus USB

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The ubiquity of USB and the fact that it is being upgrade to much higher speeds means that it is a formidable competitor for AOCs. But the number of USB ports sold each yeararound two billionis stunning. Even a small penetration by AOCs into this market would make a difference. However, it is far from clear that such a penetration will ever happen; PC makers continue to introduce machines with USB 3.0 ports, for example. AOC solutions might compete with USB 3.0 cabling at some point in the future, because the price of AOCs appears to be declining rapidly and USB 3.0 requires expensive shielded differential twinax copper rather than the unshielded twisted-pair used in USB 2.0. If the latest incarnations of USB turn out to be harder or more costly to implement than is currently expected, then perhaps AOCs will grab part of this market. Working against AOCs in the PC space is the recent announcement from the USB 3.0 Promoter Group that they plan to upgrade to 10 Gbps; twice the current rate. When and if this happens, it will certainly give AOC vendors a run for their money. And CIR doubts whether those active in the USB 3.0 space are spending much time worrying about AOCs. At the beginning of 2013 Corning introduced optical USB 3.0 extender products of the and CIR notes that while these products might be considered the ultimate threat to AOCs, they actually are AOCs in all but name. So it is possible to think of Corning as the opener of the way for AOCs to surreptitiously make their way into the PC market.
E.3.2 Thunderbolt

Intels Thunderbolt standard was completed at around the same time that CIR produced its previous AOC report in 2011. Thunderbolt was developed by Intel, with help from Apple, and uses a Mini DisplayPort (MDP) connector; it combines PCI Express (PCIe) and DisplayPort (DP) into one serial signal alongside a DC power connection. Thunderbolt was originally supposed to be an optical standard, then known as LightPeak. However, it was found that the desired 10 Gbps could be reached using copper, though optical implementations of Thunderbolt have been implemented and sold by both Corning and Sumitomo. Intel is also reportedly working on optical Thunderbolt.

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While Thunderbolt has now been widely implemented, there arent too many optical implementations that one can point to. Clearly price is a factor here. A two-meter Thunderbolt active copper cable from Apple costs around $40.
E.3.3 LAN-On Motherboard (LOM) Applications

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A LAN-on-motherboard (LOM) implementation is where a chip/chipset is embedded in a PC motherboard to handle network connections. Quite early on Finisar, with its serial Laserwire product, and TE Connectivity, with its QSFP product, became convinced that AOCs could be used on motherboards as the most effective way to allow multi-port server designs. If a serial AOC or a QSFP has proven itself as a LOM product, and companies such as Broadcom Corp. or Marvell Semiconductor Inc. can optimize LOM products for an AOC interface, the LOM intrusion into server markets can later materialize for desktops as well. But again, this is another one of those ideas about what could be done with AOCs that have never been widely implemented.
E.3.4 Active Optical Cabling for Board-to-Board Communications

Designers of very-short-reach interconnects, serving as bus extenders from board to board, always have been more willing than external link designers to experiment with proprietary physical media and protocols, so it is easy to see to imagine how AOCs might find a home in this sector.
E.3.5 3D, UHDTV and AOCs

Before HDTV became a mass-market realitysome observers believed that fiber optics would be necessary to transport itand predicted that optical cables would replace the more common coax cables within the home. Quite obviously, these prophesies have turned out to be wrong, although HDTV-over-fiber in the long-haul and in theaters is now the norm. With the advent of 3D television, there are now similar predictions being made about the need for fiber optics to handle 3D television, but again CIR has yet to see any major moves in that direction, although we also expect that these predictions of fiber-inthe-home will appear as each new phase of television technology emerges. In view of many optimistic predictions that were made for fiber optics at the dawn of HDTV, CIR believes that one should be a little skeptical about the need for fiber optics in the 3D or UHDTV context, expect in the context of theater and bar applications (where AOCs might be used) and for long-haul transport (where most AOC makers would fear to tread). That said, we note that Samsung has shown interest in using fiber-optic cable for autostereoscopic 3D and that according to some estimates the required home transport requirements would more than double if this kind of 3D TV ever becomes ubiquitous. At the very least one could imagine TV in the not-too-distant future taxing the capacity of first-generation USB 3.0, and making full use of HDMI, at the very least. Even if fiberoptic links (AOCs or otherwise) catch on just with videophiles, it could still make for a

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sizeable new revenue generator for fiber optics interface firms; there are a lot more consumer electronics ports than there ever could be InfiniBand ports!
E.3.6 AOCs and Home Video Production

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The explosion of home videoincluding HD home videomay add a new dimension to high data rate requirements for home networking. What the home video production network may need is a simple plug-and-play capacity. This may encourage the use of an AOC network, probably based on HDMI interfaces, for the home. So far, AOC vendors are not developing business plans based on the likelihood of such a usage model, but certainly have it on their radar.
E.3.7 AOCs, HDMI and DisplayPort

HDMI: Generally speaking, an HDMI cable is based on four shielded twisted pairs. However, one of the biggest problems with HDMI is long runs. Obviously, one way to get around this is by using fiber optic cable instead. And HDMI does not specify any maximum range so the potential for selling fiber/AOCs into this space seems to be there. The fiber optic extenders that exist, often dont take HDMI much further than to around 300 meters or so and some offer a lot less than that. In addition, there is the usual problem of power, although at least one HDMI extender using an AOC approach bases its powering on a USB. But the main factor that keeps fiber out of the HDMI space is undoubtedly cost. DisplayPort: DisplayPort is not as successful as HDMI but has been supported by a number of manufacturers of computer monitors and video cards. According to its supporters, DisplayPort is supposed to complement HDMI, but it uses a very different kind of video transport. Long-distance transmission over fiber optics has been part of the DisplayPort spec since version 1.1a. While some AOC firms will continue to see DisplayPort as an opportunity, the USB and HDMI markets look like they have more revenue potential for most of them. But a few observers still believe that DisplayPort will do extremely well once older standards fade away in the 2013 to 2015. It remains to be seen what will actually happen. E.4 Active Optical Cabling in the Digital Signage Sector Some kinds of networking or point-to-point technology must be used in digital signage to link together the display, content server and some kind of medial player. Optical networking technology does not seem to be common in digital signage yet, but it is used. When smaller, local digital signage networks are combined to form larger networks, this is often accomplished over a fiber optic network, but what we are talking about here is much more likely to be leased fiber than AOCs. Wide-area networking of digital signage permits centralized control and also the auctioning off of specific time slots to particular advertisers.

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AOCs are already used to some extent in digital signage and this sector appears to be the only one with short-term potential for generating significant and growing revenues for AOCs outside of conventional corporate networking. Specifically, digital signage is growing rapidly throughout the world, presenting a highvolume addressable market; smaller than consumer electronics could be some day, but much more certain at the present time. AOC firms are known to have chased after the digital signage business with some successes, although CIR is fairly certain that the penetration of AOCs in the digital signage space remains quite low. Page | 7 For AOCs to make a significant penetration in the digital signage section, what they are going to need is a compelling message that can overcome the belief in the digital signage business that structured copper Category 5e or 6 twisted-pair is good enough. Effective messaging of this kind is probably going to be quite hard to achieve. But the opportunity for fiberand hence AOCsis going to increase. CIR believes that bandwidth requirements for multiple uncompressed streams will eventually push signage vendors toward AOC. Indeed, video processing OEMs have built alliances with AOC specialists already and some of these stretch back a few years. The trick for AOC companies will be to leverage such alliances into a broader presence in the market at large. E.5 Recent AOC Supplier Developments: Firms to Watch Assuming that our projections are close to correct, we believe that the AOC market will ultimately support between three and six firms. There are many more at the present time. Although nothing like this has happened yet, we would expect to see some differentiation in the market as some firms decide to focus primarily on high-value products for the high-performance computing space, while others may see the opportunity in high volumes and the consumer space. So, in the long run we would expect to see some kind of shakeout in this industry. We are, however, several years away from that happening and at the present time, there seems to be more shuffling on the decks than a shakeout. In 2010, FCI, a manufacturer of connector and cable assembly solutions, acquired the assets of MergeOptics which makes AOCs as well as optical transceivers. Also in that year, TE Connectivity acquired the Optical Products Group assets from Zarlink Semiconductor. And just before the previous CIR report on AOCs was publishedin 2011Molex acquired the AOC group. Also, in our 2011 AOC report, CIR predicted that we would start to see some noncommodity AOC firms begin to appear from Chinese suppliers and this forecast began to come true in 2012, when 10GTEK released a 40 Gbps QSFP+ AOC in early 2012 and claimed to be the first Chinese company to offer a product of this kind. Another Chinese company, Gigalight recently announced that the company had commercialized a 40G (i.e., 4 x 10 Gbps) QSFP+ AOC.

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There have also been some interesting developments in the AOC space among major U.S. companies. Thus, CIR takes 3Ms entry into the AOC space at the DesignCon 2012 conference as a major vote of confidence in AOCs. A similar comment can be made about Avago. This company has been in the AOC space since the earliest days, but during 2012, it shifted from offering AOCs on a semi-customized to creating a more prominent offering in that space. On the other side of the equation, Emcores AOC business was acquired by Sumitomo Electric Device Innovations (U.S.) in 2012. Meanwhile, as mentioned before, we still arent seeing much activity in AOCs for the consumer electronics space, but it is perhaps worth noting that C2G (formerly Cables To Go), announced an AOC aimed at the home theater and related markets during 2012. In a related development, Chromis first fully fledged AOC products appeared in early 2012 in the form of a low-cost HDMI AOC, which the company says is the first such cable to use polymer optical fiber (POF). And VIA Labs, a supplier of USB 3.0 integrated chip controllers, announced a 5-Gbps optical transceiver for USB 3.0 AOCs over 100 meters. This was also in 2012. E.6 Summary of Eight-Year Forecasts of Optical Cabling Markets Exhibit E-1 summarizes CIRs latest forecasts of the AOC market in revenue terms.

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AOC Shipments 2013-2021 by Value

7,000 6,000 5,000 $ Millions 4,000 3,000 2,000 1,000 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 CIR 2013 Home theater PC interconnect Digital signage Data center

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Total AOC Shipment Values, 2013-2021
7,000 6,000 5,000 $ Millions 4,000 3,000 2,000 1,000 0 2013 CIR 2013 2014 2015 2016 2017 2018 2019 2020 2021

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