Nokia (NYSE: NOK) is already a big name in the optical arena, but the company is looking at the nascent transition from 400G Ethernet to 800G Ethernet transport as a chance to up its share in the data center interconnect (DCI) market.
Analysts from Dell’Oro previously told Silverlinings that 400G currently reigns supreme when it comes to both inter- and intra-data center connectivity. But Serge Melle, director of product marketing for Nokia’s Optical Networks division, noted in a fresh interview there are a few trends driving the need for more transport capacity between data centers. The first, as one might expect at this point, is the rise of artificial intelligence (AI).
“There’s a very big shift now happening toward GPUs specifically optimized to run AI, machine learning workloads. And those are going to generate significantly greater amounts of data processing than what was done in the past being done just for web page lookup and things like that,” he said. “At the end of the day, all of that needs to connect to other data centers because nothing stays int eh data center it’s always going to an end user.”
Sean Graham, a research director focused on Cloud to Edge Datacenter Trends at IDC, backed up Melle’s assertion. He noted that new generative AI tools are built on models trained on vast amounts of data and the ability to move that data around is key.
The next data center cycle
Melle also pointed to another trend that began well before the current AI boom, that of data center virtualization that is occurring as part of a bid to help hyperscalers and others avoid downtime. He noted that as part of the virtualization trend, information and compute is being spread across multiple data centers which are then managed as a single entity. But for this to work, those data centers have to be able to communicate in real time to able to share workloads.
He added the industry will likely see a big shift from 400G to 800G in a two-to-three-year timeframe. The industry is in maybe year one of that cycle, he said.
According to Dell’Oro, the DCI portion of the Optical Transport market was alone worth $2.5 billion in 2022. The firm has forecast the overall optical transport market will grow to $17 billion by 2027, and it noted that Nokia “outperformed” in Q1 2023 as optical transport revenue grew 8%. Then again, Dell’Oro also highlighted a strong performance from Nokia’s rival Infinera. It is also squaring off against the likes of Ciena, Cisco, Huawei and ZTE.
While the market is still dominated by 400G products, Melle said Nokia thinks it has a leg up on the competition as 800G adoption gets rolling. For the record, Nokia is pitching a 2.4 Tbps solution that is capable of delivering 1.2 Tbps per wavelength against Infinera’s 1.2 Tbps product and Ciena’s 1.6 Tbps, offering to meet 800G needs. Infinera and Ciena have both said their products will be available in the first half of 2024.
“We’re on the cusp of starting customer field and lab trials, which I don’t think is the case with some of the other vendors,” he said. “Infinera is integrating someone else’s DSP into their solution from Acacia, so it’ll take probably a few extra months for them to really get this solution out to market. And then Ciena is being even more bold in that they’re targeting to introduce their solution with 3 nanometer silicon, which really is not a fully developed ecosystem yet today…So I think there’s a lot more technology risk with what Ciena’s doing.”
IDC’s Graham noted Nokia is likely more of a third-place player in the market today, though could not provide exact market share figures.
Dell'Oro Senior Analyst Ivaylo Peev told Silverlinings "we see coherent optical solutions being used on Routing platforms, however, these are still in the very early adoption stages." He added in the service provider routing market "400 Gbps adoption is ongoing but still in the early stages while 800 Gbps solutions just began shipping. Nokia along with Cisco is one of the first companies shipping SP Routers that support 800 Gbps connectivity."
When you boil it all down, Melle said Nokia thinks it’ll have the right solution available at the right time to meet operator needs, a combination which will allow it to steal share. Melle confirmed it is looking to gain market share, but declined to say exactly how big of a gain it’s targeting.