As service providers pivot towards deploying pluggable coherent modules, a departure from traditional optical systems, it is driving a new transition in the WDM hardware market.
In its 3Q24 Transport Hardware Report, Cingal AI noted that global optical hardware spending declined by 17% year-over-year.
The research firm said the drop was due to weaker spending from service providers which continue to draw down excess inventory. Alternatively, hyperscalers deploying optical gear to support new data centers grew again, marking five quarters of straight growth.
“The optical transport sector is grappling with multiple growth challenges, but the surge in Cloud capex offers a significant opportunity,” said Kyle Hollasch, lead analyst at Cignal AI. “Network operators are shifting their spending away from traditional metro optical transport systems toward 400ZR-based IP-over-DWDM solutions, upending historical spending patterns.”
Hollasch added that new market growth is driven by “long-haul WDM, which is essential for connecting the AI data centers where hyperscalers are investing tens of billions of dollars.”
Diverging spending patterns
The growing influence of IP over DWDM is causing different spending patterns in long-haul and metro markets.
Cignal AI said long-haul optical hardware revenue has “surpassed Metro spending for the third consecutive quarter.”
As inventories normalized and cloud spending rose, North American optical hardware revenue was nearly flat. One notable trend was that routing sales dropped to the “lowest level since 2020.”
Another notable trend was the supply chain. Component vendors saw an improvement in their quarterly results. Still, Cignal AI noted that “some of these gains are attributed to the growing sales of 400ZR pluggables, which do not contribute to optical hardware revenue.”
Vendor pivots
Despite the recent challenges in the WDM market, optical vendors appear to be making ongoing transitions to accommodate emerging markets like hyperscalers.
Ciena, for example, started shipping its WaveLogic 6e platforms with trials and customer deployments.
Following a trial in which it transmitted and received data at 1.2 Tbps across its long-distance route between Seoul and Busan and at 1.6 Tbps across its medium-distance route between Seoul and Cheonan, KT announced plans to deploy WaveLogic 6 Extreme (WL6e) to accommodate ongoing customer demands for services beyond 400GbE.
Also, Ciena shipped a record number of 400ZR pluggables in the quarter. At the end of the fourth quarter, total shipments of WaveLogic 5 Nano to date were more than 43,000.
Infinera also continued to gain traction in the hyperscaler market. The vendor secured a second hyperscaler for its new line system and has 400G ICE-X orders from two Tier 1 customers.
Infinera also announced its first customer win for the 1.2 Tbps ICE7 but did not reveal details of any field trials.
Nokia is taking an even bolder approach.
Nokia’s CEO, Pekka Lundmark, told investors during its third-quarter earnings call that data centers have replaced traditional service providers as its main growth engine.
“Across Nokia, we are investing to create new growth opportunities outside our traditional communications service provider market,” he said.
For related articles, visit the Business Topic Center.
For more information on high-speed transmission systems and suppliers, visit the Lightwave Buyer’s Guide.
To stay abreast of fiber network deployments, subscribe to Lightwave’s Service Providers and Datacom/Data Center newsletters.
Sean Buckley
Sean is responsible for establishing and executing the editorial strategies of Lightwave and Broadband Technology Report across their websites, email newsletters, events, and other information products.