Optical Interconnect Market

Market Overview

The global optical interconnect market size was valued at USD 11.63 billion in 2021. It is projected to reach USD 35.76 billion by 2030, growing at a CAGR of 13.29% during the forecast period (2022-2030).

Optical interconnect is a broad term to describe the various methods used in integrated circuits to move data from one location to another via light. Conventional metal interconnects, such as those classified as global interconnects, incur considerable delay and power consumption while sending electrical data across vast distances, prompting research into optical interconnects. In high-performance data transmission systems, optical interconnects offer a desirable approach for improving bandwidth while lowering density and power consumption. High volumes of optical interconnects may be cost-effectively and manageably integrated into racks and onto motherboards thanks to polymer optical waveguide technology. High-performance computing applications place strict requirements on polymer optical waveguides, including low optical loss goals, long-term dependability, and current cost restraints.

Market Dynamics

Optical Interconnect Market Drivers

Increasing Investment in Data Centers Interconnect and Fiber Optic Communication

A crucial factor in the growth of fiber optic networking and communication, particularly in sectors like data centers, is the demand in the global optical interconnect market. An optical interconnect is one of the basic designs in fiber optic communication networks. Numerous providers of data center services began growing their facilities and adopting server architectures based on optical technologies. Service providers will keep looking for expansive fiber optic connectivity options as data requirements continue to soar.

Hyperscale data centers are one of the major investors in the global optical connectivity market. These technologies are used by most hyper-scale data centers that support online businesses like Facebook, Google, Amazon, and Microsoft. These hyper-scale data centers contain millions of servers that work in concert through fiber-optic networks to manage the massive amounts of data that consumers need.

Optical Interconnect Market Restraint

Slow Commercialization of Optical Interconnection-Related Technologies

Some of the biggest global optical interconnect market obstacles include slow commercialization and striking a balance between performance, cost, and efficiency. Different optical connection technologies are now in various phases of market development, and the market has several mature technologies, including III-V quantum wells. High-index contrast structures can be integrated into a variety of different semiconductor designs. However, the remaining technologies are still in their infancy and have not garnered significant investment because improving their performance remains a top priority.

Another issue with the mass manufacture of optical interconnect-based ICs is the incompatibility of mature III-V semiconductor materials with modern CMOS technology. Integration of components and manufacturing of these ICs using optical interconnects requires high precision and advanced technologies. Although silicon-based technologies compatible with current IC technology are shown to be effective for optical interconnects, their widespread acceptance is still absent.

Optical Interconnect Market Opportunities

Growth of Data Communication and Incorporation of Various Technologies

One of the significant applications of optical interconnectivity is within data communication networks, including data center networks, wireless access networks, and wired access networks. Due to the expansion of cloud computing, current data center networks, which are based on electronic packet switches, undergo an exponential rise in network traffic. A possible alternative that provides fast throughput, low latency, and low power consumption is optical interconnects. According to IEEE Communications, all-optical networks could reduce energy consumption in data centers by up to 75%. Also, there is great interest in adopting optical interconnects in large data centers used by businesses. In data centers nowadays, optical technology is only used for point-to-point connectivity, similar to how point-to-point optical links were used in earlier telecommunication networks (opaque networks). However, research is still being done on optically switched interconnects.

Regional Analysis

The global optical interconnect market is bifurcated into four regions, namely North America, Europe, Asia-Pacific, and LAMEA.

Asia-Pacific Dominates the Global Market

Asia-Pacific is the most significant shareholder in the global optical interconnect market and is expected to grow at a CAGR of 14.40% during the forecast period. The primary drivers of the market's growth are the ongoing developments in communication technology. More than half of the world's annual demand for optical cable comes from China. The nation's telecom network providers have placed fiber in every type of telecom application, including mobile cellular networks, FTTx, and intra- and inter-city connections. The Chinese government authorities also deploy fiber systems to support the nation's infrastructure, including airports, data centers, motorways, railways, and pipelines, in addition to businesses.

For instance, the Chinese webscale goliaths Tencent and Baidu awarded Nokia two contracts for its data center interconnect (DCI) network technologies. Tencent and Baidu will strengthen their current strong cooperation with Nokia to increase their software-defined DCI infrastructure and obtain the dynamic, massive-scale optical bandwidth they require to support growing cloud operations in China and the US. To encourage domestic manufacture, the Indian government has increased the levy on the import of fiber cables by 10 to 15%. The domestic market is anticipated to experience challenges until domestic manufacturers boost their production to match the increased demand, even though optic fiber cable producers applaud the increase in the basic customs tariff on optic fiber.

Europe is expected to grow at a CAGR of 12.28%, generating USD 7,268.64 million during the forecast period. A high-level strategic roadmap of fundamental technologies for future connectivity systems and components, aimed at the next generation of telecommunications networks and services, is being developed by industrial and R&D enterprises from Europe's telecommunications and microelectronics sectors. This collaboration will benefit high-performance computing, artificial intelligence (AI), photonics, the internet of things (IoT), and cloud computing sectors. Additionally, billions of devices are anticipated to be connected by 5G and 6G, which will digitize industries and improve social and economic development across various fields. The roadmap is intended to provide the groundwork for long-term European technological dominance in the 5G era and beyond. Therefore, these improvements are anticipated to influence the market's growth positively.

North America is anticipated to grow significantly during the forecast period. Due to its extensive internet usage and expanding communication infrastructure, the US has been one of the significant contributors to the growth of the optical interconnect market. These trends require improved connectivity, which drives up demand in the nation for optical interconnect connectors. The region contains many established merchants, i.e., Amphenol Corporation, Cisco Systems, Molex, Inc., and Finisar Corporation., which aids in the market's expansion. Vendors are constantly expanding their market shares through acquisitions. For instance, Cisco Systems, Inc. acquired Acacia Communications, Inc. after most Acacia shareholders approved the deal. Due to a high investment rate for 5G deployment, the United States is also one of the leading inventors and investors in the 5G market. For 5G services in the US, telecom firms, including AT&T (US) and T-Mobile, launched several initiatives. The equipment manufacturing sector has grown over the past few years despite ongoing outsourcing and increased competition from the US and East Asian producers.

Latin American internet traffic is expected to rise dramatically during the forecast period. As a result, the market for optical connectivity has been driven by the need for fiber optics. The region's digital revolution is driving digital ecosystems and interconnection. In addition, the growth in private interconnection in the area is also a sign of pervasive digital transformation within firms, which increases data interchange between organizations. One of the markets for internet services using fiber optic networks is expanding in Latin America. Major cities around Latin America have been receiving offers and signing contracts from organizations that wish to network and broaden their reach due to fiber optic networks' rising popularity among telecom and internet service providers. Argentina, Brazil, and Mexico are predicted to contribute the most to the regional market expansion. However, there is a tremendous opportunity for growth in nations like Chile and Uruguay.

Segmental Analysis

The global optical interconnect market is segmented by type and application.

Based on Type, the global market is bifurcated into optical transceivers, active optical cables (AOCs), and embedded optical modules (EOMs).

The optical transceivers segment is the highest contributor to the market and is expected to grow at a CAGR of 13.43% during the forecast period. Small, potent devices called optical transceivers can both receive and transmit data. Fiber optics sends data as light pulses along an optical fiber, and this information travels over vast distances and at very high rates. A fiber-optic network's transceiver, which is used to transform electrical signals to light signals and vice versa, is a crucial component. A network device that sends and receives signals can either have them plugged in or embedded inside. The global demand for optical transceivers has been driven by rising investments in optical devices and the rapid growth of optical communication in recent years. The evolution of optical equipment and its connection to data center modules are closely intertwined. Such elements define the potential demand for optical transceivers in the data center and their number. Data center equipment is adjusting to the transition and moving to higher pricing due to the requirement for greater rates being driven up by applications like Cloud computing and 5G.

The Active Optical Cable (AOC) is a type of optical connection that uses optical fiber between the connectors to improve the performance of the cable. The interconnect type includes optical transceiver technology inside enclosed cables with two transceiver ends to conceal the high-speed optics, which are exposed to the outside world only by an electrical link. This capability allows lines with significant aggregate data rates to be built at a meager cost (much below that of two separate connected transceivers and fibers). AOCs are also used for various applications, including high-performance computers, networking, storage, and hyper-scale systems. They are a plug-and-play, high-speed solution with longer reaches than Direct Attach Copper (DAC) cables (up to 100 and 200 meters, depending on the technology).

AOCs rely on various protocols for data transmission, including USB, InfiniBand, and Ethernet. AOCs also offer the lowest-priced optical interconnectivity, the lowest optical power consumption per end, the absence of optical connectors needing cleaning and maintenance, and optical isolation, among other technical advantages and financial advantages. During the forecast period, the demand for 40 Gigabit Ethernet (GbE) AOCs reached high, with mega data centers being the leading indicator. Due to higher server interface transmission rates, releasing the 100 GbE AOC variant is anticipated to maintain the sales momentum.

Based on Application, the global market is bifurcated into telecommunication and data communication.

The data communication segment owns the highest market share and is expected to grow at a CAGR of 15.43% during the forecast period. Other applications of optical interconnectivity are in data communication networks, such as data center networks, wireless access networks, and wired access networks. Due to the expansion of cloud computing, current data center networks, which are based on electronic packet switches, undergo an exponential rise in network traffic. A possible alternative that provides fast throughput, low latency, and low power consumption is optical interconnects. In data centers nowadays, optical technology is only used for point-to-point connectivity, similar to how point-to-point optical links were used in earlier telecommunication networks (opaque networks). However, research is still being done on optically switched interconnects.

Optical interconnectivity is also used in telecommunication networks, including core, long-haul, and submarine networks. Positive market growth is driven by developing urban cities' increasing need for connection and internet access. Optical technology provides solid and effective interconnectivity, which is eventually required to meet the growing demand for faster internet speeds and improved connectivity, which favorably impacts market growth. The need for fiber-optic connectors is increasing as fiber-optic technology expands and expands its use. An essential component of the telecommunications infrastructure is optical fiber cable. Fiber optics has emerged as the dominant transmission medium in the past ten years due to growing bandwidth demands for telecommunications businesses. The need for a transmission medium with a higher bandwidth has arisen due to the growth in data traffic from different sources, including the internet, e-commerce, computer networks, and multimedia (voice, data, and video). Fiber optics are the answer because of their nearly limitless bandwidth.

Recent Developments

• April 2022- Sumitomo Electric Industries, Ltd., at the request of the Japanese Ministry of Health, Labour and Welfare, cooperated in providing technical guidance for engineers engaged in communications infrastructure at a human resource development seminar held at the National Polytechnic Institute of Cambodia (NPIC), a vocational school in Phnom Penh, Cambodia.
• September 2022- Molex introduced first-to-market hybrid optical-electrical interconnects for co-packaged optics.