What are the key factors driving the growth of the Optical Transceiver Market

The optical transceiver market is projected to grow from USD 7.0 billion in 2021 to USD 14.3 billion by 2026; it is expected to grow at a CAGR of 15.2% during the forecast period. Owing to COVID-19, the optical market is estimated to face headwinds for 2021–2022. The increase in adoption of smart devices and rising data traffic is providing growth for optical transceivers.

There has been observed increased adoption of smart devices in recent years. It includes smartphones, tablets, laptops & desktops, and other smart devices (such as wearable devices, home assistant, IoT based home security system, and gaming consoles). Increasing trends of connected systems across various applications such as consumer devices, smart homes, and automotive, industrial communication, among others, have set to raise several IoT connections. AI, IoT, and 5G are major trends expected to rise, increasing the adoption of smart devices and resulting in rising data traffic. 

This factor further drives the market for optical transceivers, as these transceivers are used either as an extension or in combination with these electronic products for internet connectivity. The growing internet penetration rate and the number of global internet users act as a major driver for the optical transceiver market. With the global rise in internet users, the data traffic is expected to increase further and act as a catalyst for the optical transceiver market. As data traffic increases, data storage needs will rise; hence, centers are expected to upgrade their networks to fulfill these needs, which in turn drive the market for optical transceivers.

Market for optical transceivers with form factor QSFP, QSFP+, QSFP-DD, and QSFP28 is expected to grow at highest CAGR during forecast period

The optical transceiver market for QSFP, QSFP+, QSFP-DD, and QSFP28 accounted for the largest share in 2020 and is expected to grow at the highest rate and dominate the market during the forecast period. The Quad small form-factor pluggable (QSFP) form factor of optical transceivers is designed for high performance and low power consumption, which makes them ideal for data center applications. With the advent of technological advancements, such as AI, machine learning, and 5G communication, data traffic is increasing, which creates a demand for high-scale data centers. 

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Optical transceivers of QSFP form factors are also used across datacom/telecom switch & router connections, data aggregation and backplane applications, proprietary protocol, and density applications, among others, and are capable of high data transmission. Among 800G transceivers, the QSFP modules have gained significant importance because of their low power consumption and high density, and their pluggable form factor is considered an excellent choice for data center connectivity. Therefore, the increment of data traffic creates opportunities for 100G, 200G, and 400G data transmission rates, which fuels the demand for optical transceivers operating on form factors such as QSFP, QSFP+, QSFP-DD, and QSFP28. Hence, the optical transceiver market for QSFP form factor is expected to grow at a faster rate during the forecast period.

Optical transceiver market for data center application is projected to have the highest share during the forecast period

The data center application is expected to account for the largest share of the market throughout the forecast period. Furthermore, the market for data center applications is expected to grow at highest CAGR during the forecast period. This growth in the market is due to factors such as transition toward cloud storage and increasing technological developments, including machine learning, artificial intelligence, and deep learning, which, in turn, increase the data traffic across networks, which create demand for high data rate transceivers for efficient data communication. The development of hyperscale data centers also drives the demand for high data rate optical transceivers, such as 100G, 200G, 400G, and 800G, for channeling huge packets of information in a shorter span. Leading cloud service providers such as Google (US), Amazon (US), and Microsoft (US) are implementing high data rate transceivers in their data centers. Data centers are used for commercial purposes of OTT platforms, which are constantly increasing. With the predicted rise in the number of OTT platforms (Netflix, HBO, Disney, and Amazon Prime) over the projection period, the number of data centers and dependence on them is expected to rise substantially, potentially propelling the data center market.

Market in APAC estimated to grow at the fastest rate during the forecast period

APAC is expected to adopt optical transceivers at a fast rate driven by Increasing investment in 4G and 5G networks by telecommunication companies, such as China Broadcast Network (China), Rakuten (Japan), and Dito Telecom (Philippines), is expected to be the key driver for the market in APAC. Other factors such as the increasing internet penetration and an increase in the number of smartphone and other smart device (such as home assistants, IoT-based home security systems, and gaming consoles) users eventually increase the data traffic in data centers, providing an opportunity for high data rate optical transceivers throughout the APAC region. Moreover, it increases the expansion of hyper-scale data centers across the region, boosting the growth of the market. Additionally, three major internet companies in China—Baidu, Alibaba, and Tencent (BAT), are expanding their data centers across the Asian territory. Hence, the increasing expansion of data centers and advanced communication technologies are expected to drive the optical transceiver market in this region.

The key players in the optical transceiver market include II-VI (US), Broadcom (US), Lumentum (US), Sumitomo Electric industries (Japan), Accelink (China), Smartoptics (Norway), Infinera (US), Fujitsu optical Components (Japan), Hisense Broadband (China), Huawei (China), Innolight (China), Ciena (US), Mellanox (US) (the company was acquired by Nvidia in April 2020), Applied Optoelectronics (US), Amphenol (US), Intel (US), NEC (Japan), Cisco (US), NeoPhotonics (US), Perle Systems (Canada), FOCI (Taiwan), Source Photonics (US), Solid Optics (US), Eoptolink (China), and Reflex Photonic (Canada) (the company was acquired by Smiths Interconnect (US) in November 2019). uSenlight (Taiwan), and Precision Optical Transceivers (US), POET Technologies (US), ProLabs (US), Elenion Technologies (US), HRB Technologies (India), and Alpine Optoelectronics (China) are few startup companies that provide such type of transceivers.

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