We attended the #OFC18 show and found the major theme to be the emergence of 400 Gbps modules. The next most noteworthy theme, we though, was that made by a single company, Nokia, which made its PSE-3 engine announcement. Juniper also caused a buzz with the introduction of its ACX6360 router/packet optical product announcement (paired with other announcements, too). There were countless other announcements at the show that we will touch on in our reports, but these struck us a quite noteworthy.
400 Gbps optical modules, generally, are expected to be ready for sampling in the next couple months, and then be ready for volume shipments in 1H19. Most every module vendor is planning to introduce DD-QSFP. A subset of the same vendors was demonstrating OSFP modules, suggesting it was less popular at this time. We recognized a sub-theme of the 400 Gbps theme was that vendors, including Cisco and Juniper were both demonstrating hardware designs that are capable of operating at 15 Watts, which appears to be the heat that will be generated for some of the 400 Gbps modules. At the time of the show, module companies reported to us that the DSPs that would power 400 Gbps modules were unavailable, and the way it was represented to us on multiple occassions was that there is no clear indication which DSP maker would introduce the first working part.
Nokia made its PSE-3 chip announcement in support of its Optical Transport product line. It was standing room only, with lots of customers involved in the presentation (not just a bunch of analysts and competitors). We were impressed with the marketing aspect of this announcement, but also with the the statement, "we have reached the economic Shannon's limit" with the introduction of the PSE-3 engine. The implication of economic Shannon's limit is that to achieve an even more efficient design that would asymptote even closer to the theoretical Shannon's limit would be too costly. The company is claiming 25% improvement in capacity and reach, 70% increased network capacity, 60% reduction in power per bit. Chungwa Telecom and Facebook were live, on stage, serving as references for Nokia's launch. We expect full fledged PSE-3 based products will be available in about 9-12 months based on discussions at the show.
Juniper announced its ACX6360 system (as well the announcement of the ACX5448 Universal Metro Router and the PTX10002 Packet Transport Router). The ACX6360 can operate as a packet optical device, and with a software update, can also operate as a router. The general idea behind the introduction of this product is it can serve in either the packet optical transport role or as a IP/MPLS router, thereby collapsing multiple networking layers into a single platform operating at speeds up to 200 Gbps. For many uses cases, it could reduce the number of boxes from two (packet optical plus router) to one (ACX6360).
The market is in a period of rapid adoption of higher speeds led by the hypserscalers. The industry used 2016 and 2017 to adopt 25 Gbps and 100 Gbps port speeds based on 25 Gbps SERDES technology. As we enter 2018, those same hyperscalers are about to adopt 50 Gbps, 200 Gbps, and 400 Gbps port speeds based on 50 Gbps SERDES at a record shattering pace. In the data center alone, there are now eight unique port speeds, with countless more unique variations of form factor and pluggable distance.
The market will need additional bandwidth beyond what is currently available today. Several of these technologies were highlighted at the OIF Forum conference. 100 Gbps SERDES will help drive the industry towards that goal. Looking forward, 100 Gbps SERDES will help drive wave two of 400 Gbps, which will help enable Ethernet to extend its reach well outside of short reach data center distances. At the same time, it will also have a long life, with use cases ranging from enterprise to service provider.
The big question often asked is why after so many years for the market to adopt 10 Gbps, will we suddenly see a more rapid pace of adoption going forward?
There are many reason why, but we should look at a few things are different this time. First, the hyperscalers are a new type of customer. Hyperscalers truly bring a new scale to networking and compute in a way that makes the traditional SPs look small. Second, SDN, the hyperscalers have done something unique here that often gets overlooked that is occurring right now, in the second half of this decade. Hyperscalers are increasing the utilization rate of their compute and networking resources. For compute, this is approaching 100% utilization so the industry is in a period where hyperscalers, using SDN are able to grow network bandwidth at a pace faster than what the CPU is scaling.
This more rapid pace will not continue forever, but is one of the reasons why innovation over the next several years will occur more rapidly than historic norms and why it will be important for the industry to think about how to invest across speeds and technologies in order to better leverage existing investments. If not, the pace of innovation will simply be too much to recoup investment in the compresses timelines we are currently in.
We attended the Deutsche Bank Tech conference this week and met with a ton of companies. It is always interesting to see the difference in questions from investors vs. those directly in the industry. During the conference, each company put spin and had different definitions of Data Center Interconnect (DCI) that helped address their specific portfolio. This is very similar to the early Cloud days where every vendor and component manufacturer said they sold into the Cloud. Fast forward to today, and very few vendors sell to the Cloud. We see a similar end game with many suppliers being squeezed out of the DCI market as it matures.
The lack of clarity created confusion amongst the investors as they went from session to session and we think is a short term negative to the market.
We are very excited to have holistic DCI coverage. One that looks at legacy approaches around Optical and the new approach of using switching and routing. We are hopeful that the market will move towards one consistent definition of DCI as that will be better for the market itself and the suppliers in that market, but see that as unlikely as many vendors seem to be digging into a definition that is self serving and more focused on legacy products vs. what customers will want in the future.
We look forward to many future conversations on DCI.