Recently, LightCounting, a market research organization in the optical communications industry, pointed out in its market forecast for optical communications IC chipsets that in 2023, sales of PAM4 chips will exceed US$1.1 billion, while sales of coherent DSP chipsets will drop to US$800 million. The sales gap between these two types of DSP chipsets is expected to widen from 2024 to 2026.
The main driver of market recovery in 2024-2026 will be the deployment of 800G PAM4 optics in artificial intelligence clusters. LightCounting expects sales growth of PAM4 optics to slow down in 2027-2029, with first volume deployments of linear drive solutions (LPO and/or CPO) negatively impacting sales of retiming optical modules.
The recovery of the wider market, including coherent DWDM DSPs, is expected to be slower in 2024-2026, but LightCounting does not foresee any slowdown in 2027-2029, and by 2028-2029, coherent DSP market share will gradually recover.
LightCounting‘s forecast assumes that the average selling price of coherent DSPs will remain 10 times higher than the average selling price of PAM4 chips, as shown on the left side of the figure. In addition to the higher complexity of coherent DSP chips, the higher price of coherent products is also one of the reasons for its lower sales (as shown in the figure to the right).
However, it is also possible for coherent DSP vendors to reduce product cost and power consumption to compete more effectively with PAM4 solutions. A good example is the 100G ZR (80km transmission range) DWDM module launched by Coheren last year, which adopts the QSFP 28 form factor. 800G ZRLite (2-10km transmission distance coherent) optical module may be the next product.
As data rates increase to 200G and 400G per channel or wavelength, this may become an early battleground for coherent DSPs trying to penetrate the intra-data center connectivity market. LightCounting‘s current forecast does not include any coherent 1.6T Ethernet optical modules. However, if these optical transceivers become available and shipments increase, this could significantly lower the average selling price of coherent DSPs, as indicated by the red dotted arrow in the figure .
In addition, the deployment of DSP-less linear drive solutions (LPO and CPO) is also likely to exceed expectations by 2028-2029, further limiting PAM4 DSP sales, as indicated by the blue dotted arrow in the figure .
In addition, LightCounting expects more suppliers to enter the PAM4 and coherent DSP markets, thereby intensifying competition and lowering selling prices. Currently, several Chinese companies have begun to provide PAM4 DSP, and some of them may develop coherent DSP in the future. The entry of Chinese manufacturers into the optical component module market has led to a significant drop in sales prices. By 2027-2029, the prices of both PAM4 and coherent DSP will drop significantly.
