——Interview with Dr. Vladimir Kozlov, founder and CEO of LightCounting

        Editor’s note: At the 2011 Optical Communication Technology and Development Forum held concurrently with the 13th China International Optoelectronics Expo, Dr. Vladimir Kozlov, the founder and CEO of LIGHTCOUNTING, an optical transceiver market research company, published "The Decade of Bursts For the wonderful speech of "The Status of Post-Optical Communication Industry", the editor of China Optoelectronics Network had the honor to interview Dr. Kozlov after the meeting, hoping to share his wonderful views together.

China Optoelectronics.com: A report pointed out that the current optical network market has basically returned to the peak period before the recession. Can the current status of the optical communication market be updated? Has the inventory been resolved?

        Dr. Kozlov: After the downturn in 2009, the demand for optical components and modules has increased. As a result, the sales of optical components and modules increased by more than 30% in 2010. Although the market hit a new high in 2010, it is different from the 1999-2000 market boom. At that time, the market grew by more than 100% per year. There is a big imbalance between the growth of device sales and the sustainable development of network infrastructure. As a result, the market plummeted in 2001, and massive device inventories were overstocked.

      In the last 10 years, inventory management in the supply chain has greatly improved as the industry strives to reduce costs and increase profit margins. However, the production concentration of optical devices is low, and it is still relatively fragmented, and it is not yet able to calmly cope with the ever-changing demand. In 2010, as demand increased, device vendors struggled to increase production capacity to adapt to growth. The delivery time of certain products has increased by 2-3 times, resulting in product gaps and forcing customers to increase inventory. However, these situations are limited to individual product categories, such as 40Gbps devices or wavelength selective switches. Sales of short-range OC-768 transceivers and WSS modules increased by 150% and 50% respectively in 2010.

        The decline in sales of optical components and modules at the beginning of 2011 was also limited to individual product categories, such as 40G and WSS. Nevertheless, 40G and WSS sales exceeded the total sales in 2010. According to the information obtained by LighCounting, there is not much backlog in the larger market. Sales of most devices remained stable at the beginning of 2011 and will increase significantly in the second half of the year. LightCounting believes that in 2012-2015, the market will continue to grow at a rate of 15%.

China Optoelectronics.com: LightCounting pointed out in its 2010-2011 annual global optical device market analysis report that in the past ten years, network bandwidth has been lagging behind the growth rate of Internet traffic. According to a service provider in the United States, the huge network bandwidth generated during the bubble can still meet the demand for traffic growth in the next few years. In other words, there is no need to make major investments in network infrastructure. However, with the continuous changes in the traffic landscape, most of the excess bandwidth that has been built will inevitably be used up or become obsolete. Unless the service provider can increase new investment in network facilities, the network will be in the next few years. The capacity bottleneck will start to disrupt the normal operation of the network. We have noticed that Chinese telecom operators seem to be very interested in investment. Can you tell us about foreign operators? Do you think global telecom spending or optical network investment will decrease in the next few years?

        Dr. Kozlov: The Chinese government either strongly encourages investment in network infrastructure construction or direct investment. In addition, operators around the world invest as little as possible in network infrastructure to gain greater benefits. However, the limitations of network capacity herald huge hidden dangers. Some operators invest in bandwidth and promise higher-speed bandwidth. This makes other operators have to follow suit. The governments of European and American countries strive to find the right balance: to give operators sufficient financial resources to make them profitable, and to prevent them from becoming monopolies. Recently, AT&T acquired T-Mobile USA, and the US government intervened. This is a typical example. Consumers are certainly willing to have more business choices. Companies like AT&T invest in various new facilities. Of course, the network industry is also willing to benefit from such investment, rather than renting competitors' networks.

        Although the second financial crisis may be looming or appearing, and the European and American governments' regulatory strategies are vacillating, the speed of network infrastructure updates may remain stable. Because network traffic continues to grow, if operators do not provide enough network capacity, they will lose customers. They can't afford to lose this game of chess. The media may be hyped up, saying that very few operators are willing to invest because they have to strive to get more concessions from the local government before they are willing to invest. However, they can only survive by investing. China clearly leads the world in online investment. However, investment in BRIC countries (Brazil, Russia, and India) is not small. Many countries in Eastern Europe, the Middle East, and Asia and Africa have just started to modernize their networks. Therefore, the optical network industry has great business prospects.

China Optoelectronics Network: In the past ten years, the optical communications industry has been waiting for the deployment of 40G optical transmission networks. Now, with the technological revolution of the third-generation 40G transmission network, the end of the wait is gradually approaching, and 40G module manufacturers have gradually lowered the price of 40G modules, and the era of 40G networks has come. However, some experts said that the current 100G technology has broken through, and the market is about to mature. Since the beginning of this year, China Telecom has successively carried out intensive 100G live network trials and conducted capacity tests on 100G equipment from different equipment vendors. What do you think of the relationship between 40G and 100G?

        Dr. Kozlov: As early as 2000, the industry had extremely high expectations for 40Gbps. But most of them prove to be unrealistic. However, 40Gbps transmission systems are widely used at least on highly congested routes because they can use optical fiber transmission capacity super efficiently. 40Gbps coherent technology, using digital signal processing, is widely regarded as the industry standard of 40Gbps. It creates a platform for the development of 100Gbps systems.

        100 Gbps systems are currently being hyped. Almost as hot as the propaganda of 40Gbps 10 years ago. On the one hand, it is reasonable. The development of 100Gbps utilizes digital signal processing to improve the utilization of optical fiber capacity, which greatly exceeds the capacity of 40Gbps. Exciting. On the other hand, many public relations companies use this new technology to hype up 100G technology development, product introduction and testing. Claiming that technological advantages can certainly enable suppliers to obtain good media effects and maintain their own image. Therefore, it is easy for everyone to be blown away by the 100Gbps forecast.
 
        Nevertheless, 100Gbps has great prospects. LightCounting predicts that shipments of 100Gbps DWDM ports will be the same as 40Gbps similar products in 2016-2017. However, by 2017, 10Gbps DWDM port shipments are still 10 times that of 40Gbps and 100Gbps. The main reason for being optimistic about 10Gbps is its superior cost performance, while fiber capacity is not a big issue. Another reason for favoring the long life of 10Gbps and 40Gbps systems is the inertia (sluggishness) of the market, because it takes years for network operators to adopt next-generation technologies, train their employees, and even upgrade their test equipment.

China Optoelectronics.com: The latest optical transceiver report released by LightCounting shows that in the fourth quarter of 2010, global optical transceiver sales hit a new high, but in the first quarter of 2011 it fell by 5%. The decline in the Fibre Channel and Ethernet market segments was the main cause, which dropped by nearly 20% and 10%, respectively. Did the 2nd quarter improve? Can you predict the annual optical transceiver market? Where are the hot spots and challenges?

         Dr. Kozlov: Yes, the sales of Fibre Channel and Ethernet transceivers declined in the first quarter of 2010. But in the second quarter, it started to pick up. The data communications market seems to have good resilience to the ups and downs in demand, so Fibre Channel and Ethernet transceiver sales will fluctuate. The telecom transceiver market was stable in the first quarter of 2010, but declined again in the second quarter. We look forward to the end of this year, the telecommunications market will be strong again. We are full of confidence in a good year for 2012.

        Year after year, the industry always has a variety of hot topics and challenges, but most of them are limited to competition between technologies and competition between manufacturers. Therefore, there are no major issues affecting the development of the industry. LightCounting believes that in the future optical component manufacturers will increase their scale and become diversified. In 2011, there was a lot of integration among communication, semiconductor, and data communication network equipment vendors, so other manufacturers in the supply chain will also reorder.

China Optoelectronics.com: As an old friend of CIOE, how do you evaluate exhibitions and conferences? Do you have any good suggestions?
Dr. Kozlov: I like to participate in CIOE and CIOEC. It is probably the most active event in the industry. I hope it will be more convenient for foreigners in the future, because all speeches are in Chinese. If there is at least one English-speaking meeting or round table meeting, so much the better. Will you consider it next year?