LightCounting said, “We do hope that a more connected world will be a more stable one, but it’s hard to ignore the escalating tensions between China and the United States. If this trend continues, market growth will be disrupted.”The U.S. imposed sanctions on Chinese companies in 2020 to prevent Huawei and other Chinese companies from buying products made using U.S. technology, a major political escalation. Fortunately, the sanctions had only a minor impact on the optical connectivity market.Although sales of optical products to Huawei, including wireless fronthaul optical modules, dropped sharply in late 2020, China’s 5G deployment will continue. LightCounting expects 1.3 million 5G base stations to be built and operated in China by the end of 2021, compared to 100,000 in the U.S.
As LightCounting previously reported, the sanctions are affecting the global IC supply chain, even though they won’t close the gap between U.S. and Chinese 5G deployments. The shortage of ICs is currently affecting the automotive industry, slowing the economic recovery in the U.S. and Europe following the epidemic. “This is an indirect consequence of the U.S. sanctions against Huawei, which may not have been anticipated by the U.S. government.”
Shipments of wireless fronthaul optical modules are expected to drop from 32 million units in 2020 to 27 million units in 2021, with the majority deployed and manufactured in China. A higher percentage of products using Chinese-made optical and integrated circuit chips this year compared to last year, with some impact on the business of many U.S. suppliers.
Currently, China’s investment in integrated circuit and optical chip manufacturing is surging. An industry professional interviewed by LightCounting commented, “The whole country (China) is trying to make sure Huawei has enough chips.”
According to LightCounting, the forecast model for the optical module market does not take into account macroeconomic uncertainties. If the friction between China and the U.S. escalates, then all forecasts will be overturned. If the global situation can remain stable, the optical module market is expected to increase from $8 billion in 2020 to $14.5 billion in 2026.
Meanwhile, the first shipments of 400ZR, 400ZR+ and 400G Open ROADM coherent optical modules are expected to be very strong in the second half of 2021. LightCounting points out that some suppliers believe that our forecast for 400ZR is too conservative, but given that there are currently only two major customers for 400ZR, Amazon and Microsoft, the forecast is reasonable. We expect to see more customers for the 400ZR+ and 400G Open ROADM optical modules.