Market research firm Light Counting recently released its forecast for the optical components market from 2024 to 2028, and in the current industry downturn, this forecast stands out for its optimism.
The demand for optical connections began to decline in the second half of 2022, leading to an increase in inventory in the supply chain. Forecasts for this market were notably bleak just six months ago. Leading optical module and device manufacturers reported significant performance declines earlier this year, and the market outlook for the second half of this year and even next year was not optimistic. The industry's morale received a boost from the AI hardware craze sparked by NVIDIA. Over the past two quarters, Google and many other cloud companies have increased investments in AI networks. Suddenly, predictions for the demand in 2024 surged. The 4x100G and 8x100G optical modules are in high demand.
As shown in the graph below, the market decline in 2023 is set, but next year's Ethernet optical module sales are expected to grow by 30%. Other areas are expected to remain stable or experience moderate growth in comparison. Over the next five years, the global optical module market will maintain a 16% CAGR, with a projected 6% YoY decline in 2023.
Amazon, Google, Microsoft, and other cloud companies are expected to lead the demand for new AI applications, resulting in significant investments in AI devices. This will drive the increased demand for 400G, 800G, and AOC, indicating a market for 400ZR/ZR+ and subsequent 800ZR/ZR+ optical modules next year.
Compared to the almost doubling of cloud companies' CAPEX during the three years of the pandemic, the CAPEX for the top 15 ICPs is only expected to grow by 1% in 2023. However, AI network investments in 2023 make up the majority of the entire CAPEX. Unless there is a major economic downturn, it is expected that cloud companies will resume significant investment growth after 2024, but it remains uncertain whether it will reach double-digit growth.
Telecom operators' investment plans for 2023 are expected to decrease by 4% due to a lack of new revenue sources. There will be no significant demand growth in this sector in the coming years, despite the increased deployment of 5G. For operators, cloud services are their top priority. Large enterprise users require dedicated connections, and the bandwidth demands of small and medium-sized enterprises and consumers will bring new opportunities for low-latency broadband services. Operators need to continue investing in access and metropolitan networks to meet these demands.