Timely information.
An additional reason for Infinera’s recent stock price meltdown was over concern on how much DCI revenue will be lost to shorter reach direct connect pluggable optic solutions such as those by Inphi.
Hopefully this article helps to dispel some of the concern and the stock can continue the upward trajectory it resumed after the last conference call.
https://blog.infinera.com/2016/04/21/breaking-down-the-dci-m…
ACG’s key observation, which aligns well with our conversations with customers, is that the shorter DCI links are often built using short-reach pluggable optics. A majority of the DCI links using pluggable optics are not captured in the market forecasts for optical DCI systems built on coherent DWDM technology.
This is an important point in understanding how an embryonic 100G DCI technology, PAM-4, fits into the market. At the OFC conference in March, Inphi announced a new pluggable module with claims of up to 80 km reach. We believe that may be a challenging target given the complexity of the technology and the variable quality of existing fiber, and that real-world deployments of PAM-4 will mostly be seen in the under 40 km range, at least in the near term. That means PAM-4 will primarily be an alternative to existing short-reach pluggable optics, and will overlap only slightly with applications using coherent DWDM.
In those distance ranges where either PAM-4 and coherent DWDM technology could be used, we agree with ACG that a few other factors will limit PAM-4 acceptance. In particular:
Capacity: PAM-4 is limited to 4 terabits per second (4T) per fiber pair, while coherent 16 QAM systems will achieve around 27T. Anywhere capacity demand is high and fiber is scarce or expensive, coherent technology will be preferred
Operational complexity: At any distance over about 7 km, PAM-4 is not a plug-and-play solution. External amplifiers and dispersion compensation modules must be deployed and tuned, leading to complicated link-by-link design and commissioning. Fixed wavelength modules create complexity in sparing and capacity upgrades. New generations of technology will not be deployable on the same fiber with the first generation, leading to forklift upgrades
In our experience, most DCI users are not optical network experts and they value the extreme plug-and-play simplicity of an optimized DCI appliance such as Cloud Xpress. Even sophisticated DCI users will not tolerate the PAM-4 solution complexity in many of their applications, for example, when using DCI to connect to peering partners in neutral Internet Exchange facilities where there is no equipment available to host pluggable modules, or when deploying DCI in international markets where there is no operations staff with optical networking expertise.
Combining all of these factors, we believe that PAM-4 is appropriate for a narrow set of applications where the links are short, the fiber is cheap, high quality and plentiful, and the operator has the right type of networking equipment and advanced optical engineering and operational expertise. Just like existing pluggable optics solutions, PAM-4 adds a new pluggable option that is largely complementary to coherent DWDM systems.
In sum, we’re happy to see that analysts and industry observers are beginning to further segment the DCI market and educate the industry about the complementary nature of DCI technologies. We continue to see a bright future for Cloud Xpress product family and our other DCI solutions.
Best,
–Kevin