A bright future in telecom for diode lasers

The rapid growth in demand for diode lasers for telecommunications applications is nothing short of astounding.

The rapid growth in demand for diode lasers for telecommunications applications is nothing short of astounding. In this issue (p. 70), Bob Steele, director of optoelectronics for consultants Strategies Unlimited (Mountain View, CA), notes that "telecommunications is the jewel in the crown of the diode laser market." It's a jewel that is shining with the power of an arc light and whose brilliance shows no signs of dimming.

According to Steele, diode lasers will account for 69% of the total laser market revenues this year, a fraction that has been increasing rapidly since diode lasers first overtook nondiode lasers in 1996. Telecom accounted for almost 69% of the diode laser market in 1999, an impressive $2.18 billion that represents a remarkable 58% increase over 1998. For this year, Steele projects a 37% increase in diode lasers for telecom to just under $3 billion. That's more than the entire worldwide market for all types of lasers back in 1996.

Internet will spur WDM growth

Of course, when the market growth is supersonic, accurate predictions are very difficult to make. The demand for telecom equipment is being driven by the explosive growth in Internet traffic which, in turn, is predicted to zoom by anywhere from 200% to 300% this year, depending on who is interpreting the tea leaves. If the long-haul telecom carriers had to install new lines to cope with all this burgeoning demand, we would be awash in new fiberoptic cable. Fortunately, the technology of wavelength-division multiplexing (WDM) has come to the rescue, enabling many more channels to be pumped down each fiber (see our supplement, WDM Solutions, packaged with this issue). WDM is extensively used for long-haul communications but it is now becoming practical for metro networks, too. So those rosy diode laser predictions for this year may be much too low.

Writing in the September 1999 issue of WDM

Solutions, Neil Dunay of the market research firm KMI (Newport, RI) predicted a 23% compound annual growth rate (CAGR) for WDM systems through 2004. There are even higher predicted CAGRs for WDM components: Dunay estimates a 50% growth rate through 2004 for lasers used in WDM systems, despite a likely 10%-15% drop in component prices due to aggressive competition and improved manufacturing.

Through the next few years, optical technology is hardly likely to stand still. Manufacturers are busily developing all-optical switching systems, and the larger telecom equipment companies are forging alliances with the often more-nimble startups, such as Ciena and Lightera, Lucent and Ascend, and Nortel and Bay Networks. Dunay cites the development by Corvis (Columbia, MD) of a product that the company claims can transmit up to 160 channels on a single fiber over 3200 km without regeneration. That's more than five times the typical distances possible with WDM equipment currently on the market. Lasers, amplifiers, and multiplexers designed to take advantage of the L band (1570-1650 nm) which will double channel counts, could be shipped before the end of this year, notes Dunay. All of these developments presage further advances in diode laser technology.

Mergers will continue

Look for even more consolidation in the fiberoptic component manufacturing field. As noted by associate editor Neil Savage in Optoelectronics Report (December 15, 1999), the merger and acquisition frenzy of 1999 was most evident among telecom equipment companies. In particular, JDS-Uniphase (San Jose, CA) has been on a buying spree and has subsequently become one of the darlings of Wall Street. I wonder how long will it be before diode laser manufacturer SDL (San Jose, CA) becomes the target of a take-over bid? A buyer would be gaining some exceptional semiconductor laser technologies there.

Does all this M&A activity spell the end of the smaller specialty diode laser manufacturer? I think not. The flood of money in telecommunications means that there are more venture capitalists seeking the next JDS-Uniphase. Thus, there will be increasing opportunities for startup companies, particularly those that can bring products to market faster than their larger and slower-moving competitors. The future looks bright for entrepreneurs chasing the terabit transmission target. One thing is certain: it's going to be a wild ride.

Jeffrey Bairstow
Group Editorial Director
jbairstow@pennwell.com

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