I was reminded last week as I was speaking with an optical transceiver module vendor about their data communications product, just how difficult this market is. Not only do they need to start development of the next data rate before they make ANY money on the current state-of-the-art, but most of their margin is actually taken by their equipment manufacturer customers. I've written about this before, but its time to rant about it again.
I’ve noted in the past how equipment manufacturers charge a lot more for optical modules they sell to end users than what they actually pay for them from transceiver suppliers. Considering the pains NEMs go through to “qualify” their vendors, a healthy markup in the early stages of a new product adoption can be warranted. But, I’m not so sure keeping it at more than 5x the price five years down the road can be justified. And is it sustainable? Some transceiver manufacturers sell products at gross margins in the 20-percent (or less) range, while their biggest customers (NEMs) enjoy upwards of 50-percent.
And guess what, there’s not much the suppliers can do. It is well known that Cisco, Brocade and others purchase modules as well as SFP+ direct-attach copper cables from well-known suppliers and resell them at much higher prices. And if I’m an end user, I MUST buy these from the NEM or their designate or my equipment won’t work. These devices have EEPROMs that can be programmed with what some call a “magic key” that only allow them to work with specific equipment. So the OEM now has a captive market for modules and copper cables connecting their equipment, and so they can pretty much charge what they want to and they do. If I try to use a “standard” module or cable assembly – one that is compliant to the specification – it will not work unless it has this “magic key.”
I’ve experienced this first hand when I worked in a R&D lab. I had a brand new HP ProCurve Gigabit Ethernet switch that I wanted to use for some cable testing I was doing. I had dozens of SFP modules from all of the top transceiver manufacturers, but none of them would work in the switch. I called HP and they said, “You have to buy the HP mini-GBIC.” Well, I knew that wasn’t exactly true. I didn’t really want to pay the $400+ each for four more SFPs that I didn’t need so I tried to work through my contacts at HP to get a firmware patch so I could use my existing devices. Long story short, I never did get that patch and ended up doing my testing with SMC switches instead.
Nothing much has changed since my original post about this more than three years ago except that the devices keep getting cheaper. NEMs are still gouging the end user, while squeezing their vendors' margins. For instance, Cisco pays around $20 for a 10GBASE-SR SFP+ module from its top vendors and turns around and sells it for over $100. I'm actually surprised more module vendors haven't decided to discontinue their data communications module business in favor of some more lucrative opportunities. This model is not sustainable for the long term.
Monday, November 11, 2013
Friday, November 8, 2013
- Short Reach Optics Workshop: Focused on solutions for solving all kinds of issues with high-data-rate signals. Subjects included data center networking, optical backplanes, standards roadmaps, Ethernet and Fibre Channel optical device technology evolution, embedded optics, surface-emitting DFB lasers, hybrid electrical/optical PWBs, Silicon Photonics, polymer waveguides and polyboards. The key take away was that while the pluggable modules will be around for some time that eventually these may have to be eliminated as higher data rates are adopted.
- Space-Division Multiplexing (SDM): There was a workshop dedicated to SDM. To me, this has always meant multiple fibers, but now, companies are using this term to describe using "few-mode fibers" as well. There are several companies that are developing this technology. Coriant seems to be at the forefront and presented several papers at ECOC and was one of the first companies to demonstrate that SDM is feasible in an existing network with its trial with Telekom Austria earlier this year. It seems that the concept has spurred a whole new area of fiber development.
- Data Center Optics: While all of these new technologies are great, we still need to be realistic about opportunities in the short-term. That's what my presentation at the Market Focus session on data centers was about. Below is an excerpt of slides from this presentation.
There are too many 100G form factors and still no variant that addresses the 100m to 10km reach/cost gap.
Over the next five years, media in the data center will go from mostly copper to mostly fiber.
The majority of that fiber will be LOMF OM3.
Posted by Lisa A. Huff at 9:46 AM
Wednesday, April 17, 2013
Tuesday, April 2, 2013
Friday, March 29, 2013
I haven’t attended an AFCOM Data Center World Conference in almost five years because when I did, my impression was that the exhibits were not well attended by would-be clients of the company I was working for at the time. In fact, that year, we saw only two potential customers in our booth. People that have attended it recently have told me much of the same. They received less than a handful of good prospects to target.
Fast forward to 2013 when I’m temporarily living in the UK and have an opportunity to attend Data Centre World in London. I was pleasantly surprised to find, in my opinion, a much better event – and it was free for qualified attendees! Perhaps that was the difference. I found the conference program to be comparable to AFCOM’s and the exhibit floor to be much more crowded. The other refreshing thing was that while software defined networks (SDN) were mentioned, they were not the overwhelming theme. The program stuck to its intended subject matter, the data center market, its networks, facilities, clouds and hardware.
Some of my observations from attended presentations and visits to some of the booths:
- Data center space demand throughout the world is expected to level off within the next five years due to server virtualization. SSE Telecoms showed this chart to illustrate this:
- More than 75% of network traffic stays within the data center. Thus the trend to higher data rates and flattening of the data center network.
- The vertical market customer drives data center needs. In other words, if you’re a healthcare organization, your data center may look much different from a state/local government data center.
- “Shadow IT” is driving change in local area networks (LAN) and data centers. Bring your own device (BYOD) forces company networks to be more open to the employees using them, but poses possible security issues for the IT department.
- Co-location is slowly becoming the norm for even smaller businesses due to the expenses associated with maintaining ownership of the data center.
- Many connectivity vendors were there and they seemed to be getting healthy traffic in their booths. Some that I visited were 3M, Brand-Rex, CommScope, Corning, Draka/Prysmium Group, Fujikura, HellermannTyton, Lynx Data Cabling, Methode, Ortronics and Telegärtner. All were showing either copper and fiber solutions (or both) for the data center.
Sunday, March 17, 2013
By Thomas Debiec
Colocation data centers were the topic at the February Philadelphia meeting of 7x24 Exchange Delaware Valley Chapter. Representatives from the University of Pennsylvania, Wilmington University, Comcast and Vanguard shared their opinions on this topic. Here are a few takeaways from this meeting:
- Considering colocation to support new and to improve existing services.
- Comcast is going to regional data centers to support new and existing services in various regions of the country enabling them to increase performance and roll out new products quickly. Services are moving closer to the edge.
- University libraries are moving away from hard books.
- Universities are moving to cloud-based grading services such as Blackboard.
- Mission critical recovery – a separate location is needed for disaster recovery and backup
- To support cloud services
- To take advantage of new technologies that might be very costly in-house
- Companies no longer want to be in the DC business
- Data centers are a huge expense
- If you host it you own it
- Growing comfort levels in not owning and operating
- Security is not as much of a barrier due to proven case studies
- Companies are still feeling their way around
- Vanguard representative feels that larger banks are moving to colocation perhaps more quickly than other vertical market sectors.
Tuesday, January 22, 2013
The Urban Land Institute's "Emerging Trends in Real Estate" outlines some interesting trends in the real estate market. Businesses are shifting their requirements from offices that place a premium on quality and size to more compact spaces. These spaces encourage productivity, efficiency and collaboration. They may disregard cubicles in favor of workbenches and rely on cloud computing to take the place of file cabinets.
Driven by the more than 85.4 million Millennials, these young workers desire the benefits of mobility and interconnectedness using the most up-to-date communications devices allowing them to operate anywhere. Companies are embracing this concept. In December, Gartner reported that 70% of survey respondents are planning to implement “Bring Your Own Device” (BYOD) policies in the next 12 months. Companies like Electronic Arts (EA) are moving away from windows-based laptops in favor of iPads, MacBooks and smartphones. Approximately 10,000 phones currently fall under their BYOD policy. EA is also replacing offices and cubicles with open office space.
From the structured cabling standpoint, these trends could have a profound impact, not only on the volumes of cable and connectors, but also require rethinking the cabling-systems design. There will be less focus on tethering every workspace back to the telecommunications room (TR) and more focus on wireless and wireless performance. While we don’t expect TRs to disappear, we do see the number of physical connections to the traditional work-area-outlet (WAO) decreasing over time. The new version of the WAO will be the wireless access point (WAP).