Recently, market research firm LightCounting released the Quarterly Market Update for the third quarter of 2023, covering the period ending on September 30th.

According to LightCounting, the financial performance of the optical communication industry in this quarter was not overall satisfactory. Compared to the third quarter of 2022, capital expenditures of Internet Content Providers (ICP) and Cloud Service Providers (CSP), sales of data communication and networking equipment, semiconductor* sales, and optical component sales all experienced negative growth. (*Semiconductors excluding NVIDIA)

The reasons behind this performance are attributed to a contraction in spending by ICPs, CSPs, and enterprises, as well as the continued high inventory levels of many customers of device and equipment suppliers.

However, there were some encouraging exceptions. Alphabet and Microsoft set historical highs in capital expenditures, and companies like Arista, Broadcom, Calix, Acacia Communications, and NVIDIA reported record revenues.

With the exception of broadband specialist Calix, there is a common trend among other equipment and component manufacturers: they all benefit from the increased spending of large ICPs on artificial intelligence infrastructure. NVIDIA reported a sequential growth in revenue of over 30% and a year-over-year growth of over 200%, illustrating how intense the competition has become in the development of artificial intelligence infrastructure.

Regarding shipment data for optical module suppliers, LightCounting stated that although the formal survey for the third and fourth quarters has not been completed, based on current analysis, sales volume increased in the third quarter and is expected to further increase in the fourth quarter, reaching a historic high, as shown in the accompanying chart. The data includes estimates for 400G and 800G optical modules produced internally by NVIDIA.

LightCounting further mentioned that the growth expectations for the fourth quarter are anticipated to extend into 2024, aligning with guidance provided by various companies, from Alphabet and Amazon to Coherent and Lumentum.

It is worth noting that the growth in 2024 will primarily focus on infrastructure related to artificial intelligence, with the demand for these products expected to far exceed that of other areas such as traditional telecommunications and enterprise networks. The majority of the growth in the optical components and modules market will come from the sales of 800G optical modules.